Are life and disability policies really for life?

Key takeaways

  • A life insurance, disability insurance or severe illness policy can be in force for life or for a term, such as until your retirement. 
  • You may also be obliged to take out credit life policy that covers your debt until it is repaid. 

ou can take out life, impairment and severe illness cover that will stay in place for the rest of your life or for a term only.

If you take cover out for the rest of your life it is known as whole of life cover.  

When term cover is appropriate

Cover for a term only may be appropriate if: 

  • You need cover until you have paid off a debt. If you are covering your life until you have paid off a debt, you can decrease the cover decrease in line with the decreasing balance of the debt you are repaying.

    Typically when you take out a loan on a home or car or to buy furniture or clothes, you have to take out a form of term cover known as credit life cover. The only time you may not need to do so is if you already have a suitable insurance policy which can be used as security. Read more: What is credit life cover?
  • You only need life and disability cover until you have paid off your debts and saved enough to retire. At that time, your savings will fund your income or buy a pension. Once you have saved enough to support yourself and your dependants, you may no longer need life cover.

What to consider

If you take out life and disability cover that ceases at retirement because you will no longer need it, it is likely to be cheaper than taking out cover until you die because the period for which you are covered is shorter.

You need to weigh up the benefits of having cover against the cost of the premiums for cover that could be used to contribute more to your savings 

It is a good idea to hold some kinds of cover, such as disability cover that pays out on impairment and severe illness coverfor the rest of your life as you are most likely to incur additional costs of an impairment or severe illness in your later years.