Don’t rely on your life policy for retirement

Almost every working person knows that life insurance is an important element of a financial plan and they know that this product pays out a fixed sum of money to their nominated beneficiaries when they die. What many people don't know, is that there are many different permutations of life insurance. Not knowing how your life insurance is set up, could cause you some real headaches down the road; especially if you have the belief that the proceeds will cover you in retirement.

The problem starts when people use the term Life Insurance interchangeably with Long Term insurance. Life Insurance is definitely a long term insurance product and so are disability policies, income protection, critical illness cover, retirement annuities and endowments. Many individuals and sometimes even experts (for ease of reference) lump these products into the term "Life Cover" and this can cause a lot of confusion if you are a lay person.

You can opt to have life cover as a stand- alone product or you can tag on critical illness, disability income protection and a savings portion. The problem with doing this, is that trying to ascertain the value of the investment portion is very difficult and the amount you actually save is rarely enough to secure your retirement. So the first thing you need to know is that you should keep your risk products separate from your savings products.

Life Cover

There are three different kinds of life cover.

Whole life cover is an ordinary life cover which is valid until you die or surrender the policy. It covers you against the risk of death. This policy is ideal for a person who wants to leave a fixed amount of money behind after death, e.g. to pay estate duty, and to leave money for a spouse or to fund a child's education. It is the least expensive form of life cover. The monthly premiums are invested by the insurance company. You can also borrow against the policy if you wish but this is not a good idea. An important part of the policy is the "guaranteed term". This is the period of time that the insurance company guarantees that the cost of the life cover will remain the same, thereafter they may increase the cost of the cover. Make sure you understand this portion of the policy.

Then there is Universal life cover, which is similar to Whole Life but it has an investment portion included. The returns on the investment portion, depends on the nature of the investment. It does not guarantee a fixed rate of growth because it is influenced by the performance of the markets. While the returns may be reasonable, the amount apportioned to the investment are usually never sufficient to secure a healthy retirement fund. A Universal Life policy is in essence a flexible contract, the cover is purchased on a month to month basis and increases in cost per unit -as the policy grows older. It is not spread evenly over the whole period of the contract from inception- as in the case of term and whole of life policies. As the value of the policy increases over the years, less life cover needs to be purchased to maintain the initial death value. The cash values will be paid out to the legal owner on surrender or maturity.

Term or fixed insurance is used when you want to provide life cover for a set period of time, for example while paying off a bond, or until your children are self-sufficient. It is not expensive and you can add benefits to it, such as a lump sum for disability. After the agreed period of time, the cover simply expires.

It is important to note, that if you are an employee on a group scheme, your nominated beneficiary for your retirement funds will not receive the risk portion (life cover) after you reach retirement age,  even if your you are employed at the time of your death. In other words the risk portion of a death benefit usually falls away once a fund member reaches retirement age, so if a member is older than the retirement age when he or she dies- life cover is not paid to the beneficiaries.

When you sign up for your company benefits package get some advice and try to keep your risk and savings separate, this way your beneficiaries will receive both the life cover and the investment portion of your portfolio. If you are unsure about how your benefits package is structures, there is no time like the present to get familiar with it.

If you are interested in receiving a Free Quote for Life Cover, please click here: http://bit.ly/1nJYjpQ