A life insurance policy provides money for your dependants when you die. As with any ﬁnancial product, there are a number of things to consider before choosing a life insurance policy:
If your children are young, you may need more cover than if you have older children, as younger children will be dependant for a longer period of time. Essentially, you need to think about buying enough insurance to:
- Provide an income for your family for as long as they need it.
- Clear any loans or mortgage you may have (note: you may already have mortgage protection insurance to cover your mortgage repayments).
- Ensure there is money to cover larger costs that may arise in the future, i.e. third level education costs for your children.
- Do bear in mind that you may not need life insurance or you may need less cover if:
You don’t have any dependants or your family is grown up and ﬁnancially independent.
You have suﬃcient death-in-service beneﬁts through your job or pension plan.
- You have enough money or you have investments that could provide a suﬃcient income for your dependants to live on if you died.
Your partner earns enough money to support themselves and any dependants.
Talk to your Financial Broker who can help you understand if you need life insurance.
With life insurance, you have a number of options: you can arrange cover for a limited period, called ‘term life insurance’ or cover to last throughout your life, called ‘whole of life’ cover. You can also opt for a ‘joint policy’ or ‘dual-life policy’ with your spouse/long-term partner or joint borrower. There are also a number of optional extras you could add to your policy, including: conversion, indexation and income beneﬁt.
Term life insurance: Life insurance policies pay a lump sum to your named beneﬁciary or your estate if you die during the term of the policy. Term life insurance is the most straightforward and one of the most aﬀordable forms of life insurance. For example: you might take out a term life insurance policy on your own life for €100,000 over 10 years. If you die within 10 years (the term), the policy pays out €100,000 to your dependants. If you don’t die within the term of the policy, no beneﬁt is paid out and the policy ends.
Whole of life insurance: Whole of life insurance guarantees the payout of a lump sum whenever the policyholder dies, so long as the required monthly premiums are maintained. Premiums for whole of life cover are more expensive than ‘term life insurance’ as the cover can potentially run for the whole of your life.
With whole of life cover, some of your monthly premiums may be invested by the insurer into investment funds. This exposes you to the risk of your premiums increasing. Some companies oﬀer guaranteed whole of life rates. This means the premium will not increase for the same level of cover throughout your life and the policy and life cover will remain in force as long as you pay the premium.
Joint Policy/Dual Life Policy: If you are in a relationship and have young children, it may be worthwhile considering a joint life policy. This covers two people on the same policy and could pay out a lump sum when the ﬁrst of you die (a joint life policy) or a separate lump sum on the death of each of you (a dual life policy).
Conversion: If you add a conversion option to a term assurance policy you can renew or extend the term of your policy at a future time for a cost appropriate to your age and the terms oﬀered by the company at the time, regardless of your state of health at that time. This protects you in case your health deteriorates and you can’t get cover in the future. Make sure you talk to your Financial Broker about the terms of conversion – when can conversion be exercised and are there restrictions on the options you can select on conversion?
Indexation: This allows you to guard against inﬂation eroding the real value of your cover over time. Premiums and cover increase annually at your policy anniversary date. Pay attention to the rate of increase in premium versus the rate of increase in cover. Some policies have a cheaper premium to begin with but have a higher rate of increase in premium over time.
Income Beneﬁt: You may prefer to have a beneﬁt paid as an income to your family rather than a lump sum (or in addition to a lump sum). This may be appropriate if you have a young family and need to provide for their day-to-day expenses until your children reach maturity.
Your Financial Broker can advise you on all of the options and their costs to help you to select the most suitable plan for you and your family.
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