Different types of life insurance: Explained

What are the different types of life insurance?

If numerous members of your family financially depend on you, there’s the inevitable question of how well they would be able to cope if, at any point, you passed away suddenly and unexpectedly. Knowing the types of life insurance you can get can help ease the situation.

types of life insurance family walking in sunlight at park

This question is especially worth asking if your corporate prowess has left you the family’s main breadwinner and they have become accustomed to receiving a high level of financial support from you.

By taking out a life insurance policy now, you can ensure your loved ones receive financial assistance if you die. However, what types of life insurance could you consider?

Term assurance

This is life insurance in its most basic form, as it requires you to simply specify how much you would like to be insured for and how long you want cover. However, the policy would only payout if you died during the specified term.

Term assurance is available in three main forms: level-term, decreasing-term and increasing-term insurance. The consumer watchdog organisation Which? describes how they differ – and suggests that, sometimes, “a combination of the two is the best answer.”

Family income benefit policies

Usually, with a decreasing term policy, the amount you’re covered for decreases during the agreed term – making the policy suitable for covering a debt destined to slowly reduce, like a repayment mortgage.

Family income benefit insurance is a decreasing-term policy. However, upon your death, the insurance will pay out not a lump sum but instead a monthly income to your beneficiaries until the policy expires.

Whole-of-life plans

Unsurprisingly given the name, sourcing one of these plans would enable you to keep it in place for your whole life. Therefore, the policy will pay out whenever you die – though, as the policy is obviously guaranteed to pay out at some point, this insurance would carry a more expensive premium compared to term assurance.

As the ABI (Association of British Insurers) implies, you might also sometimes see whole-of-life plans referred to as life assurance.

Group life cover

This is where an employer foots the bill for life insurance they provide to an employee. This type of life insurance can therefore serve as an employee benefit that you, as an employer, would be able to advertise in the job description when you are advertising a new vacancy.

If you are concerned about how much it could cost you to buy group life insurance for your employees, take heart that YuLife offers group life insurance for small businesses to, in turn, offer to their workers.

Over-50 plans

If you are aged over 50, you might be wondering how your loved ones might, after your death, pay the costs of your funeral or pay leftover debts you accumulated during your lifetime.

In this situation, you could potentially do your peace of mind a big favour by signing up for an over-50 plan – or, as it is otherwise known, a guaranteed whole-of-life plan. This would ensure that your beneficiaries receive a tax-free lump sum upon your death. As the ABI indicates, only people aged over 50 can apply for over-50 plans.