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Insure Or Invest
If your primary reason for buying life insurance is to protect the people who are financially dependant on you, the cheapest and most efficient option is to buy protection only or ‘term’ insurance.
Term insurance pays out only when you die within a specific period of time (the term); this is normally between 5 to 25 years, although it can be longer. If you’re still alive at the end of your term, you get nothing back (in the same way that you wouldn’t get anything back when you do not claim on your buildings, content or automobile insurance).
You can also purchase investment type life insurance. This is basically an investment with life insurance supplementing it for tax reasons. The current attraction for this type of insurance is that you get something back whether you die or not, though you should expect this with any investment you make.
You should also keep in mind that you will not get back the part of your premium which was used to pay for life cover, not do you get back any commissions paid to the person who sold you the insurance (which is consistently higher in cash terms than the commission paid when you purchase term insurance).
The main disadvantage of investment type life insurance is that it is a very expensive way of buying protection for your dependents.
If you want life insurance and have some money to invest, then it is advisable to take out term insurance and put your spare cash into another investment venture.
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