Money or your life or both?

Life assurance is more of a flexible friend than you may think. It all depends on your needs.

There are so many different varieties of insurance linked to the life of the policyholder and so many life assurance companies with similar offerings that expert advice can be invaluable.

Term assurance

At its simplest, in exchange for paying a premium, the life office will agree to pay out a certain sum if the insured dies before a certain date.

If the policyholder does not die within the term, the policy merely lapses. There is no payout of any sort. These policies are usually cheap to buy and they perform the useful function of providing protection for those who benefit from the policy, such as family members, if the policyholder dies.

The same principle of protection applies to a number of other types of insurance whether the benefit is, for example, to provide specific help to the deceased's family, or to repay a mortgage.

Endowments

These are a common form of investment policy. Regular premiums are paid, and when the term of the endowment expires a lump sum is paid out. The lump sum may be used to repay a mortgage, for example.

Most endowments have a protection element such that if the policyholder should die then a lump sum becomes payable.

Whole-of-life policies

Similar in nature to term assurances, whole-of-life policies provide cover for the whole of the insured's life. Generally more expensive than term assurance because there is certainty that the policyholder will die at some time. The benefit payable on death will be either a lump sum or the value of the invested fund, whichever is higher.

Critical illness

Considering just how many lives are wrecked by critical illnesses such as heart disease, cancer and stroke, it is surprising that more people do not take out critical illness insurance.

The principle is straightforward; in the event of an illness being diagnosed, the insurance company will pay out a lump sum after a survival period. Often, critical illness cover is combined with other types of insurance and may even provide an investment element so that, for example, a given sum will be paid out on the death of the insured.

In summary, life related insurances are all about what sort of benefits you want from them. If it is basic protection for loved ones when you die, then the costs can be quite modest and the policies quite straightforward. For full-blown investment products inclusive of life cover, the terms may be more complicated, but the long-term returns can be worthwhile. No one said that life assurance was necessarily easy to understand but it is an important ingredient in many people's personal financial portfolio.