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Life Cover: Types of Insurance

Term Insurance

Term insurance is, by definition, temporary insurance. Each year, a premium is paid to cover the risk of death that year. Term insurance has no cash values.

If death occurs, the beneficiary collects the death benefit.

Cover is normally issued for terms ranging from five years to twenty-five years or even longer. The main attraction of term cover is that it provides a cheap form of life cover at the younger ages.

Some term policies have a "conversion option". This means that before the end of conversion period you can trade the term policy for a whole life or a universal life policy without having medicals. (This excludes HIV testing).

Whole Life Assurance

Whole life insurance is a form of permanent insurance, and is designed to remain in effect throughout one's lifetime. It is well suited to needs that do not diminish over time, such as paying estate settlement costs and taxes. These premiums can be several times higher than you would pay for term insurance, but they are smaller than you will eventually pay if you were to keep renewing a term insurance policy until your later years. These policies also develop "cash values" which are payable to you if you surrender the policy. An important part of the policy is the "guaranteed term". This is the period of time that the insurance company guarantees that the cost of the life cover will remain the same, thereafter they may increase the cost of the cover.

Universal Life Policy

A universal life policy is in essence a flexible contract, which combines life cover with investment in varying proportions, dependant on the need or requirement of the policyholder. Besides its extreme flexibility, the major attraction of the universal type policy lies in the cheapness of the life cover offered. This is because cover is purchased on a month to month basis and increases in cost per unit, as the assured grows older. It is not spread evenly over the whole period of the contract from inception as in the case of term and conventional whole of life.

As the value of the policy increases over the years, less life cover needs to be purchased to maintain the initial sum assured (death value).

The cash values will be paid out to the legal owner on surrender or maturity. The cash values can be used as security and for loans normally up to 95% of the value.



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