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One of the most important decisions you can ever possibly make for the good of you and your loved ones is getting good life insurance. Of course you can never be 100% sure that you have the best sort of insurance until you actually die and it comes into action. It is for this reason that I write this article. It will aim to outline the different types of life insurance available and will hopefully help you find the right sort of cover for your needs.

There are two main types of life insurance on the market. Although many more types exist, these other types are extremely specific and will probably not apply to you, so we will deal with the main two for now. The two types you are best to concern yourself with are known as Term Insurance and Whole of Life Insurance.

Whole of life insurance is probably the most simplest in so much as it insures you for the whole of your life, you could say it does what is says on the tin. You take out whole life insurance for a set sum assured and you just keep paying it till that fateful day comes. You can add features such as indexation to the benefit, this means that the sum assured (and the premium) will rise with inflation. This is a valuable feature as what is a large amount of money today will not be a lot of money in the distant future, so one well worth considering. Let’s face it you don’t want to take out life insurance now for a lot of money only to find out it would barely take you out for dinner 40 years later.

The main reason that you would decide to choose whole of life insurance is for the protection of your family. You want to make sure that in the event of your death there is a sufficient amount of money saved for your family to be able to reinvest and provide an ongoing source of income for the future when you are no longer there to provide for them. The downside of this form of insurance is that because it runs for the whole of your life, it is not the cheapest option available. It is, however, the only one that guarantees a cash payout at the end of your life.

The other main type of life insurance comes in many different forms, but all of these forms are known as Term Insurance. This basically means that the policy runs for a specific length of time, which can be anything from 1 year up to 60 years. Once you have decide the time frame, you then decide the amount of money you want to insure, and then you can work out what you pay in each month. It’s as easy as that. If you die within the timeframe the policy pays out, if not the policy ends and that’s it. Indexation can also be included in this sort of life insurance policy, performing exactly as explained before.

As I have said, term insurance comes in several forms. We have level term insurance, decreasing term or mortgage protection as it is sometimes known, family income benefit also called family income plans, convertible term and last but not least renewable term insurance. I will try to shed some light on these in the following paragraphs.

First is decreasing term or mortgage protection. This plan is the same as all term plans in so much as it runs for a specified period of time. However the difference is that the sum insured reduces year in year out. The reason for this is linked to the use it is put to. You would normally use this type of plan to cover a repayment mortgage and with repayment mortgages the amount of debt falls year in year out so the plan just mimics that reduction. The benefit of this is the premiums for 100,000 cover for mortgage protection which decreases each year are a lot cheaper than for 100,000 on level term. So if it is a repayment mortgage you need to cover then this plan is possibly the one for you.

Family Income Benefit, this plan in the big scheme of things is quite young; it was born out of the need for families to produce an amount of income each year rather than just a lump sum. The problem with a lump sum for family protection is it is incumbent on the beneficiaries to invest the money to produce the income they have lost as a result of the life assureds death. Family income plans do this with the minimum of hassle. All you do is take out the plan for a set period of time and for a set amount of income per annum and if the life assured dies then the plan just pays out that income each year until it has run its full term.

The last two types – convertible term and renewable term – are very similar in that they both allow you to alter the terms of the policy providing those alterations are made before the end of the term. The first one we will describe is a renewable plan. Renewable plans allow you to renew the policy at any time before the expiry date of the original term without any underwriting, or health checks. So a 10 year plan could be extended for 10 more years regardless of the state of your health, as long as you do it before the first plan expires.

The convertible plan takes it to another level. This sort of plan lets you convert the original policy from term insurance plan to whole of life, as long as it is done within the time of the original term. The reason you may want this option is if you couldn’t afford a whole of life policy at the start but find yourself in a position to take one out later. Convertible policies allow you to change to whole of life when you can without having to undergo any health checks.

You should know, however, that convertible and renewable policies are more expensive than regular term policies. Also, when you do come to renew or convert your policy you will be asked to pay the premiums in accordance with a person of your age at that time, which will inevitably be higher than you have been previously paying, so don’t be under the impression that you are getting a free lunch. The main thing is to ensure that you have the right cover needed regardless of your health.

So now you are hopefully a little bit more enlightened as to the different life insurances out there available to you. Nevertheless, it is strongly advised that you should consult an expert before making any decision, for as we know, the wrong decision can go undetected until it is too late to fix.

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