Taking out life insurance is one of those things that most people realise they should be doing at some point in their lives. For many, this is when they make a major life-changing commitment, such as buying a house, getting married or having children. We get to that point where we realise that the world doesn’t revolve around us and that others will be directly impacted by our decisions.
The decision to start paying out a sum each month to financially protect your family in the event of your death is a very selfless one, but this doesn’t make parting with the cash any easier. In fact, many people start to wonder, ‘can you get your life insurance money back’? and even ‘does life insurance pay out if you don’t die?’ Here’s my attempt to answer these (surprisingly common) life insurance questions:
Can you get your life insurance money back?
In the case of most whole-of-life life insurance and term life insurance policies, which are the two most common types of life insurance, you will not have your premiums returned to you. Whole-of-life life insurance covers you until you die and then pays out, regardless of when that is. Term life assurance pays out if you die within a pre-agreed term. However, if you do not die during that term, the policy will not pay out and you will not receive your premiums back.
There are some circumstances where you may be able to opt for a ‘return of premiums rider,’ which could mean that you get some or all of your premiums back in certain situations, but this could also lead to much higher premiums in the first place.
Does life insurance pay out if you don’t die?
Sorry guys, but we all know the old phrase, “nothing in this world can be said to be certain, except death and taxes.” Everybody dies. However, WHEN is a key factor in whether or not you will receive a life insurance payout.
If you pass away within the term of your term life insurance, or at any point if you have whole-of-life cover, you are likely to receive a payout. However, if you are still alive at the end of your term life assurance, you won’t receive a payout.
Term life insurance can be an option for those who feel they only need cover for a certain period. For example, if you feel your insurance is to protect your spouse against the cost of paying the mortgage alone, then you may decide to take out life insurance that lasts as long as your mortgage.
The advantages are that term life insurance is often cheaper than whole-of-life cover, however, there is a risk that you will never receive a payout.
Some life insurance policies include critical illness cover, which usually pays out when you are diagnosed with certain serious illnesses. If you have this type of cover, you could well receive a payout even if you don’t die.
Taking out life insurance isn’t always an easy decision to make and no one likes to think of their own or their loved ones’ mortality. That’s why it’s a good idea to talk to an objective third-party, like an independent financial advisor about your options.