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Affordable Life Insurance

The difference between term and whole-life policies; plus some other attractive options.

Whilst term life cover is probably the most affordable life insurance, it offers far less benefit than a whole-life policy. But then whole-life policies generally cost a fair bit more. These days middle-ground insurances such as critical illness or even mere tax efficiency might prove viable alternatives.

Life cover fundamentally splits out into two very different categories. The first is term life cover which is a form of insurance- it pays out if you die during the term of the policy (usually five, ten, twenty or more years). If you survive the term, the policy has no value whatsoever, and you don’t get anything back. If you don’t mind that fact, then term cover is the most affordable life insurance you can get. But over twenty years or more, you need to be aware that you’ll be paying in an awful lot of money not to get anything back at all.

Whole-of-life policies cover you for your entire life (not surprisingly!)- you keep paying in, knowing full well that one day it will pay out. This is therefore a form of investment; and much of your contribution will go into the stockmarket, which in an ideal world will push up the value of your pot when you do pass away. In actual fact, the recent downward market trend has meant payouts have been well below par, although if you’re only thinking about taking out a policy now, much can change in twenty years.

Whole of life policies are more expensive because of the investment component, but are meant to offer a higher yield. When looking for affordable life insurance, be aware that there are plenty of options in-between the two. If you want to enjoy your money before you die, critical illness cover can be bolted on to both term and whole of life policies. As you are five times more likely to be diagnosed with a critical illness than to actually die, this could mean that you can “enjoy” a term policy payout without actually dying during the term. Similarly if you want complete flexibility without the architecture of a whole of life policy (although you’ll sacrifice some tax breaks), there are plenty of other investment vehicles which will allow you to build up a pot of money.