Life Insurance – Some Common Taxonomies for the Novice

If you are not familiar with life insurance, then it could be possible that you do not understand all of the terms that are associated with it. It is important to have an understanding of these terms, so that you know exactly what to expect from the insurance cover.

Term Assurance

This is when the life insurance will cover you just for a certain period of time – term being the time. Level term assurance is the simplest type where the premium is paid for a specified term and if you die an agreed sum of money will be paid out. It is possible to have a decreasing term assurance where the cover will reduce over the time, this would be normal when it was to repay a mortgage that was being repaid. A convertible term assurance will be able to be changed to a whole life plan or an investment or endowment, providing an investment when it matures.

Whole of Life

This is a permanent insurance where there will be a fixed amount paid on death and premiums will also be a fixed amount.

Family Income Benefit

This is an insurance that pays a regular, tax free amount to the family when you have died. These are often used when there is a young family or to cover the costs of a loan or other regular bills.

Critical Illness Cover

This is often offered as an addition to term assurance but can be offered on its own. It will pay out a lump sum when the policy holder gets an illness from a specified list.

Terminal Illness benefit

This is similar to critical illness cover but the policy holder gets paid if they are diagnosed with a particular terminal illness.

Total and Permanent Disability

This gives a lump sum payment if the policy holders have a total and permanent disability during the insurance term.

Trust

A trust is a way of wrapping the life insurance so that it goes to a particular person when the policy holder dies. This can help to avoid inheritance tax as if it is not in a trust, the money will be paid to the estate.

Waiver of Premium

This can be added to a policy if required. It will make the premiums more expensive but means that if there is no money to pay the premiums due to illness, unemployment or injury, then they will be paid for a certain time period.

Death in Service

This applies to an employer’s insurance where they will pay out a lump sum if the worker dies while in employment. It is normally a multiple of their salary.

It is very important to have an understanding of what these terms mean so that when you buy or inquire online for life insurance quotes to ensure that you know what you are signing up for. Some items will make the premium more expensive and so you will need to decide whether you think that it is worth including them. It is best to see how much extra they will cost and decide whether you think that they are worth that extra money.

About Author:

SB was once an insurance consultant working for a leading Insurance Firm in Australia. He is also working on his blog dedicated to life insurance and various aspects of it. His vast experience in this field has inspired him to write resourceful articles like this.