What is life insurance? Forbes contributor Esther Shaw provides a to-the-point definition, describing life insurance as “a type of protection designed to help your loved ones cover mortgages, debts and day-to-day expenses when you are no longer around.”
Therefore, it makes sense to consider opting for life insurance to not only cover yourself as a business owner but also look out for the financial welfare of your employees’ dependents. However, any talk about life insurance can be strewn with initially bewildering jargon – like the phrases defined below…
“Term life insurance”
This is so-called as it only remains valid for a specific period of time as detailed in the policy terms and conditions. While it would provide your loved ones with a lump sum payout in the event of your death, the life insurance policy would be rendered useless if the term expired before a claim is made.
In other words, once the term has expired, all of the premiums previously paid into the policy would essentially be lost – but the policy’s usefulness could depend on what type of term life cover it is.
“Decreasing term life insurance”
With this type of term cover, the amount that would be paid out upon your death will decrease over time. This means that, if you die earlier in the term, your family will get a larger payout than they would if you were to die nearer to the term’s expiry date.
Hence, a Business Advice article advises that you could use this insurance to cover outstanding debt the balance of which would fall over time.
“Increasing term life insurance”
Naturally, this is the opposite of decreasing term life insurance – meaning that, over time, the payout will grow. Over the length of the policy, this payout will rise by a fixed amount every year. As a result, this insurance could help you to protect your business assets against the cost of inflation.
However, as the policy would still run out at the end of the specified length of the term rather than upon your death, you might prefer to instead consider…
You might often see this term being used seemingly interchangeably with “whole-of-life cover”. In either case, the reference would be to a type of life insurance intended to run for the rest of your life.
For this reason, your loved ones would be guaranteed a payout. Hence, opting for a whole-of-life policy would, despite the relatively high expense of choosing this over term cover, would also remove a lot of the risk attached to that temporary type of life insurance.
“Group life insurance”
A glossary of life insurance terms published by Business Insider describes this as thus: “Employer-provided life insurance that is usually offered for free.” However, any employee who is discharged from, retires from or quits the company will lose coverage.
So, by offering employee life insurance of this description, you could show your commitment to fostering your employees’ financial wellbeing while also inspiring these workers to remain loyal to your business.