The Basics of Life Insurance

Apr 8, 2024 | Life Insurance, Protection

Life insurance serves as a financial safety net, ensuring that your loved ones remain financially secure in your absence.

It’s a contract between you and an insurance company, where you pay premiums in exchange for a lump sum payment to your beneficiaries upon your death.

But before we delve into the types of policies, let’s clarify some frequently used terms:


  • Proposer: The individual applying for the insurance policy.
  • Life Insured: The person whose life is covered by the policy, and upon whose death the payment is made.
  • Insured/Policyholder: The person who owns the policy. Often, the life insured and the policyholder are the same, known as an ‘own life policy’. However, they can differ, leading to ‘life of another policy’.

Understanding Term Insurance

Term insurance is the simplest and most affordable type of life insurance. It provides coverage for a specified term, paying out the sum insured if the life insured dies within this period. If the policyholder outlives the term, no payment is made, and the policy expires without any surrender value. Let’s explore the different flavors of term insurance:  
  1. Level Term Insurance The sum insured remains constant throughout the policy term. It’s straightforward: if the life insured passes away during the term, the policy pays out; if not, it simply expires.
  3. Increasing Term Insurance Here, the sum insured increases over time, either by a fixed percentage or in line with inflation. This policy is designed to counteract the eroding value of money due to inflation, ensuring your cover keeps pace with rising costs.
  5. Renewable Term Insurance This policy allows the life insured to renew their coverage at the end of the term without undergoing health reassessments. While premiums may increase with age and each renewal, it offers continued protection without the hassle of medical exams.
  7. Decreasing Term Insurance Ideal for covering debts that diminish over time, like a mortgage, the sum insured decreases annually, dropping to zero by the term’s end. The premiums stay constant, making it a cost-effective option for specific financial obligations.

Whole of Life Insurance

Unlike term insurance, whole life insurance provides lifelong coverage. It guarantees a payout upon the death of the insured, whenever that may be, making it a cornerstone of estate planning and wealth transfer strategies. This policy can be particularly useful in managing inheritance tax liabilities, ensuring your heirs receive the legacy you’ve intended without a significant tax burden.

Joint Life Policies

For couples or business partners, joint life policies offer a shared coverage option.

These can be structured as:

  • Joint Life First Death: Pays out upon the first death among the insured, typically used for mortgage cover or family protection.
  • Joint Life Second Death: Pays out after both policyholders have passed away, often used in estate planning to address inheritance tax concerns.

Choosing the Right Policy

Selecting the right life insurance policy boils down to your personal and financial circumstances. Consider factors like your financial responsibilities, dependents, and long-term goals. For those looking to cover a mortgage or provide for their family over a specific period, term insurance might be the way to go. On the other hand, if you’re focused on estate planning or leaving a financial legacy, whole life insurance could offer the permanence and peace of mind you’re seeking.


Q: Can I switch between policy types?

A: Yes, but it depends on the terms of your current policy and the insurer’s offerings. Always consult your insurance provider for guidance.

Q: How do I determine the right amount of coverage?

A: Consider your debts, income, living expenses, and future obligations (like college tuition for kids). A rule of thumb is to have coverage that’s 10-12 times your annual income, but personal circumstances vary.

Choosing between term insurance and whole life insurance isn’t just about crunching numbers; it’s about understanding your needs, goals, and the financial future you envision for your loved ones. Armed with this knowledge, you’re better positioned to navigate the life insurance landscape, making choices that align with your life’s journey and the legacy you wish to leave behind.

As you ponder these options, remember that life insurance is more than just a policy; it’s a promise, a commitment to the well-being of those you cherish most.

This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

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Schedule an Obligation-free Call With an Adviser

By scheduling an appointment with an adviser they will reach out to you at your requested time. 
Personal advice, whenever it suits you.

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