The types of life insurance available in Spain and how the policies protect the insured for a fixed period or for the whole of their life…
Originally life insurance was called “life assurance” as it was certain the event concerned would happen – a person was assured of their death. In contrast, insurance related to events that might happen, such as a house fire or theft. Life assurance is now commonly referred to as life insurance.
Types of Life Insurance
Life insurance policies may be taken out for:
- a period of one, ten or twenty years (Term Insurance)
- or for the duration of the policy holder’s life (Whole of Life).
Term insurance in many other countries, including the UK, is more correctly called a “level term insurance” as an average premium is calculated at the outset of the policy and the premium stays the same each year throughout the period of cover. In Spain, the premium is adjusted on a yearly basis taking into account the age of the insured person at the policy renewal date.
Term insurances are often taken out to provide for family protection in the event of one of the parents dying so that sufficient funds are available to pay a family’s accommodation, school fees and living expenses.
A mortgage protection plan or decreasing term insurance is often taken out to cover mortgages or loans. It is one of the most common types of life insurance; as the mortgage repayments are made the loan decreases, the amount of cover decreases to reflect this change.
Key man insurance is often taken out by companies to help financially in the event of the death of an essential member of the company.
On the death of the life insurance policy holder, their named beneficiaries are paid out by the insurer.
Savings plans can be used to put away amounts of money which accrue interest or increase in value when placed in appropriate investments. These can then be surrendered at any time to provide a lump sum.
Pension plans are tax efficient and in view of the amounts available on most state pensions should be considered as they provide additional funds in the retirement years.
Using Life Insurance
Life insurance is not compulsory by law although banks and mortgage lenders often insist on one to protect their interest in a loan. Medicals are necessary in many cases. These are dependent on age and the amount of cover required. The cost of the medical is paid by the insurer.
Insurers usually have a one or two year exclusion for suicide to try to prevent people taking out insurance with this intention in mind.
The cost of funerals in Spain is increasing. Many insurers provide additional cover for funeral expenses or funeral expense plans, these are relatively inexpensive and very easy to arrange.
After the death of a policy holder, beneficiaries may claim on the policy. They must provide a death certificate (Parte de Defuncion), the policy and proof of their identity. Some insurers make an immediate payment of €2,500 while the claim is being processed.