10 Jul How Does Life Insurance Work?
The most basic type is called term life insurance, where you choose the amount you want to be
insured for and the period you want cover for.
If you die within the term, the policy pays out to your beneficiaries, also known as death benefit. If
you don’t die during the term, the policy doesn’t pay out and the premiums you’ve paid aren’t
There are three main types to consider – level-term, decreasing-term and increasing-term insurance.
Depending on your circumstances, it could be that taking out more than one type of policy (for
example, a combination of level and decreasing term cover) works best for your situation.
Having some form of life insurance in place is important in a variety of situations:
- If you have people who are financially dependent on you, such as children or a partner with whom you own a property, who would be left worse off if you passed away.
- If your loved one wouldn’t be able to meet your monthly mortgage repayment and the otherhousehold bills without your income.
- The loss of a parent can create additional costs, such as a greater need for childcare.
Here’s how life insurance typically works:
- Determining the Need: The policyholder assesses their financial situation, dependents, and
financial obligations to determine the amount of coverage needed.
- Choosing the Policy: Term life insurance provides coverage for a specified term, such as 10,
20, or 30 years, while permanent life insurance offers lifelong coverage. An experience
Protection Adviser will discuss needs, options and costs to establish the most suitable
- The Policy Terms: The insurance company may require a medical examination or request
medical records to assess the applicant’s health. Based on the provided information, the
insurance company evaluates the applicant’s risk and determines the premium.
- Death Benefit Payout: Upon the insured person’s death, the beneficiaries named in the
policy receive the death benefit as a tax-free lump sum. The beneficiaries can use the funds
for various purposes, such as paying funeral expenses, settling debts, replacing lost income,
or funding education expenses.
It’s important to review and update your life insurance coverage periodically, especially during
significant life events like marriage, having children, or purchasing a home, to ensure it aligns with
your changing needs.