Life insurance is traditionally used to help individuals following the loss of a family member. There are numerous other uses for life insurance, such as for investments and critical illness cover, that spur individuals to obtain them.

Life Insurance policies vary tremendously in their complexity, cost and coverage. Some offer a simple payout upon death others can act more like investments. Traditionally they are associated with protecting the family of the deceased from financial distress. However polices can also include many other factors such as insuring business colleagues so an organisation will not suffer their loss. Other policies can provide payments if the insured is diagnosed with a critical illness or becomes disabled.

The length of the policy can vary from months to decades depending on how long the individual wants protection for. The amount the insured would like to receive following death is chosen then a monthly premium is paid. The premium is dependent on age, sex, health of the insured and the type of policy.

There are two main categories of life insurance: term insurance and investment-type. While all pay a sum following the death of the insured the payments can vary in size and number depending on the type of policy.

Term insurance (also known as ‘temporary insurance') pays out if the insured dies during the period of the contract. This has the least expensive premium and the protection level is considered high. Term insurance is often taken out to continue mortgage payments, following death of the insured, to lessen financial distress of dependents. The insured chooses the length of cover and if this is exceeded and the individual is alive then no payout is received. The terms of the policy depends on the needs of the insured; for example some insure until they believe their children will leave home and others insure just for the length of their mortgage.

There are various types of temporary insurance that differ in flexibility of the terms and the payments received. The ‘level term' is a standard option in which the policy provides money on the death of the insured. Following the end of the policy term no money is paid if the insured is alive.

In a ‘renewable term' policy the individual can purchase another term insurance after a certain amount of time has passed. The insured will not need to provide additional health information if the policy does not extend beyond a specific age.

An individual would have the option to covert their policy to an investment type policy if they purchased ‘convertible term' insurance. As in the ‘renewable term' the state of health of the insured would not be considered although age would and this may lead to a rise in premiums. Those interested in this policy must renew before the end of their present policy. They should be aware that the sum assured on the new term would be equivalent to that of the previous one.

A ‘decreasing term' policy premium remains the same throughout the terms of the policy although the end payout falls annually until it reaches zero. This type is often cheaper than level term insurance and it can be used to pay outstanding balances on loan and repayment mortgages.

‘Increasing term' insurance protects payouts from the effects of inflations. The insured pays a premium which increases annually as does the amount to be received. Consequently this type of policy is usually more expensive than level term.

‘Family income benefit' is a term insurance that suits some families because it guarantees that a regular income would be paid to the family following the death of the insured. The regularity of payments would be decided by the insured likewise with the length of the policy. A common length of time is the estimation of how long children may be dependent on the remaining adult. Additionally some policies include payments which rise annually.

The second category of life insurance is investment-type. This category includes polices that accrue investments that the insured can redeem in their lifetime such as ‘endowment policies' and ‘whole-of-life' policies.

Endowment Insurances is often compared to saving and is combined in a number of ways to enable return on investments. A ‘with-profits' approach entails the insurance company using the premium paid for investing. Any investment is added to the policy with a bonus system and paid once the agreed term has run its course. The total investment acquired through this method cannot be guaranteed and neither can the final amount of the policy.

‘Unit-linked' policies are also used in conjunction with endowment insurance. In this category the insurance company invests in companies of the individuals choosing. The amount received is directly linked to the worth of the investments at the time the policy term ends. Consequently it can be unpredictable concerning what the insurance company may pay out.

The final kind of investment-type insurance is whole-of-life. Unlike term insurance, which will only pay out for a fixed term, this kind of policy lasts until the insured dies. Consequently they are often more expensive than term insurance because there is a guaranteed pay out from the policy. Paying of premiums varies and some are not paid past a specific age - although the insured is covered until they pass away – and in others the insured pays until they die. These policies and premiums can be reviewed and altered by the insurance company.

Life insurance can be an important flexible asset adding security to an individual's life. As well as providing payouts following death it can be a source of investment. Insurance can often have additional options such as cover for critical illness, fatal accident, accidental death and protection of businesses by the insuring of employees.