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A child's guide to life insurance (particularly for the over 50s!)
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Life insurance (or assurance) is about providing financial security for people who depend on you. Life insurance will pay out a lump sum or fixed regular income, either when you die (if a whole-of-life policy) or if you die within a specified term (term insurance).
Whole-of-life insurance pays out an agreed sum when you die, whenever that is, as long as you are still paying the premiums Some whole-of-life policies also contain an investment element to them, but such investment-type policies cost a lot more than protection-only insurance.
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Term insurance is the simplest and cheapest type of life insurance, and is known as term insurance because you choose how long you're covered for, say, 10, 15, or 20 years (the term).
It only pays out if you die within the term you've agreed. If you live longer than the term, you get nothing. As a couple, you can also take out term cover in both your names, with the policy paying out on the first death only during the term.
There are different types of policy you can have, including a family income policy which pays out an income rather than a lump sum; or an increasing or decreasing policy where cover and premiums rise or fall over the years; or a renewable policy which lets you extend the original term.
Decreasing term insurance is often linked to a repayment mortgage (where the amount you owe decreases over time) and may, in this instance, be called mortgage term insurance or mortgage protection life insurance.
The premiums you pay are usually fixed for the whole term. There are also contracts where premiums are reviewable after a certain period, usually five years.
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