Life insurance can feel like a heavy topic and is one that most of us would probably rather avoid. However, wrapping your head around it can help you and your family better prepare for the future. One of the first things you may be wondering is who exactly life insurance is for. With this knowledge, you’ll be able to make an informed decision on whether it is the right choice for you.
What Is Life Insurance?
To best decide who life insurance is for, first you need to be clear on what it’s all about. In a nutshell, a life insurance policy is designed to provide a tax-free lump sum if the insured person dies. The amount of the tax-free lump sum is chosen by you at the outset of your policy, and it will determine the level of the premium (i.e. how much you pay for your insurance). Generally speaking, the higher the lump sum, the higher you can expect the premium to be.
There are many different types of life cover policies, and many choices to be made in choosing the right type of coverage for you. Ultimately it will come down to what you can afford, what level of lump-sum you think would provide a sufficient level of financial comfort and, in the case of a couple, whether one or both partners gets coverage.
What kinds of life insurance are there?
There are several types of life insurance policies out there designed to suit people of different ages and circumstances. Generally speaking, in Ireland you will find Whole of Life insurance and Term Life Insurance. Here are the key differences between the two.
Whole of Life
As the name suggests, this type of life cover plan covers you for your entire life, leaving a lump sum when you die. There are two options of this life cover out there, which as as follows:
- Guaranteed option, where the price is fixed for the entirety of the cover, presuming you keep up with your premiums.
- Reviewable option, where the insurer can review your premiums, potentially leading to significant price hikes. Though they can seem like an attractive option at first thanks to low initial premiums, they can often end up being unaffordable in later life.
Term Life
Term life insurance covers you for a set period of time, for example 40 years, and once that term is over you are no longer covered. In other words, the benefits will only be paid out if you die during the term of the policy. The different kinds of Term Life Insurance options are:
- Level term, where the benefit is paid out if you die within the specified term
- Decreasing term, where the amount you’re covered for decreases over the life of the policy (used to cover a debt that reduces over time, for instance a mortgage)
- Increasing term, where the amount you’re covered for increases over the duration of the policy to keep in line with inflation and cost of living.
Most life insurance companies offer a conversion option for Term Life policies so you can extend your plan in the future without having to provide any additional medical information. This can be a cost-effective alternative to taking out a Whole of Life policy, which tends to be more expensive.
While these are the two main categories that life insurance will fall under, there is also a type of cover designed for those in later life that we’ll discuss a little more below.
So, who is life insurance for?
The bottom line is that anyone over the age of 18 can benefit from a good life insurance policy. However, at its core, life insurance is meant to provide financial security to your loved ones in the event of your death. As a result, it’s generally something that you would take out when you are no longer just looking out for yourself. Let’s take a look at some of the main reasons someone might consider getting life insurance.
Getting married
If you are about to get married and combine your assets with your partner, then having life insurance in place will enable you to make financial contributions to your spouse in the event of your death.
In this instance we would usually recommend opting for dual life rather than joint life coverage. The price difference is often minimal, and dual life means that both parties are covered for the duration of the term for the full amount of the lump sum insured. In other words, if both parties die, the policy will pay out a lump sum for each party. Joint life means that the policy pays out once, for whichever partner dies first.
However, it is important to note that if the relationship breaks down, your insurance provider may not be able to divide a dual life insurance policy into two single ones. If this happens many years down the line then this could prove expensive, as life insurance premiums increase with age. An alternative to dual or joint coverage is for each partner to take out a single life insurance policy when they get married, though this will generally come at a greater cost.
Having a baby
Raising a child is expensive, and life insurance can help to provide for your child even after you are gone. A lump sum payment to your partner will help to lessen the financial burden of childcare, or you can even choose your child as the beneficiary of your policy. While minor children cannot access the money, the payment can then be used as they see fit once they reach maturity.
Even if one of you is a stay at home parent, life insurance can be hugely beneficial should the unexpected happen. The average cost of full-time childcare in Ireland is around €174 per week1, and this could be much more depending on the number of children you have and the area you live in. Amounting to €9000 a year, it’s a significant amount for any family to take on. Add on the value of all the other tasks that a stay at home parent might do (like cleaning, cooking, gardening and pet care), and it’s clear that it’s not just loss of income you need to take into account.
Planning for your funeral
According to a survey by An Post Insurance, the average cost of a funeral in Ireland is €4,062. And this figure is only increasing with time. Having an insurance policy in place later in life can help take care of your funeral expenses so your loved ones aren’t left with the bill.
Over 50’s life cover is created for situations like this, whether it’s to pay for a funeral or simply leave your loved ones a cash sum. Contributions for these policies will generally be smaller than others as the payout is going to be significantly lower.
There is also normally no fixed length to Over 50’s policies, as they simply continue for as long as you live. This doesn’t necessarily mean that you have to pay the premium indefinitely, as most policies only require you to pay after a certain number of years or once you have reached a specific age. For more information, see our simple guide to life insurance. You may also want to read our post on the savings to be made with life insurance.
Conclusion
One of the best ways to determine whether life insurance is a good option is to take stock of your current financial obligations and contributions. What impact would it have on your loved ones if you were no longer around? If your outgoings aren’t mitigated by another income, investment or savings then life insurance could be the right choice for you.
If you would like to review your financial plan or are considering taking out a life insurance policy, we would be happy to speak with you. While you don’t want to have too little coverage, you don’t want to have too much coverage either. Through a preliminary consultation, our experienced team can help you formulate a plan and provide you with some extra peace of mind when it comes to your finances. To get in touch, simply head over to our contact page and we’ll get back to you as soon as we can.