What is the difference between life insurance and term life insurance?

3 April2021

Buying life insurance can be a tricky task. There are many varieties of life cover out there, with lots of different names. Often all this terminology is describing fairly similar policies. For example, term life insurance is just one kind of life insurance.

What kind of life insurance is term life insurance?

Term life insurance is simply life insurance that lasts for a certain amount of time, commonly referred to as a "term." When you buy your policy you can decide how long you would like the term to last - for example fifteen years.

There are a couple of different kinds of term life insurance. These are:

Level-term cover

This is usually a relatively straightforward kind of policy. The amount you pay per month and the amount that the policy will pay out remains fixed as long as your cover is active. You can determine the size of the payout when you buy the policy. This could be based on how much your family will need in order to pay off any existing debts, as well as how much you can afford to pay per month.

Level-term cover can provide you with peace of mind because you have control over how long it lasts, how much you pay and how much your family could receive.

Decreasing-term cover

This kind of cover often requires a certain amount of forward planning. As the policy continues, the size of the payout gets smaller and smaller. This may seem a bit confusing at first. Why would people pay monthly premiums for a decreasing cash sum? A common reason is that it often costs less than other kinds of insurance. The logic behind it is that the potential payout decreases in line with your future financial commitments.

For this reason, this kind of cover is often associated with mortgages. A mortgage is a financial responsibility that decreases over time. The more you pay off, the less you will have left to pay. Decreasing term cover (sometimes offered in the form of mortgage life insurance) is designed to reduce your amount of cover alongside your decreasing financial responsibilities. That way your family will only ever receive as much as they will need.

Decreasing term cover is also a popular option for people who want the sum they leave behind to help with childcare costs. After a certain age, children begin to become more self-sufficient financially. As time goes on the amount they will need from you will decrease.

What other kinds of life insurance are there?

You may also wish to research whole-of-life cover. This kind of cover is guaranteed to pay out at some point, as long as the terms of the policy are met. It appeals to people who want to leave money behind for their loved ones no matter what. It is a very reliable but more expensive kind of cover.

If you would like to know more about term life insurance or any other variety of life cover, just fill in the form below.

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