Life insurance is a tricky one, no one wants to think about it and no one wants their loved ones to be left without it after they’re gone.
We generally advise considering a life insurance policy at the point when you are no longer just looking out for yourself i.e. either when you get married or when you have a baby on the way.
Life insurance provides a tax-free lump sum if the insured person (god forbid) 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. price) – the higher the lump sum, the higher the premium.
There are many different types of life cover policies, and many choices to be made in designing the right type of coverage for you – ultimately it will come down to what is affordable for you now, what level of lump-sum you think would provide a sufficient level of financial comfort & in the case of a couple whether one or both partners gets coverage.
Term insurance is life insurance for a specified period of time, for example 20, 25 or 30 years. Whole of Life insurance is life insurance which covers you for your whole life: this type of policy is generally far more expensive, the insurance company is effectively guaranteeing a lump sum payment to you at some point in the future, whereas with term insurance they may not be required to make a payout at all.. in which event both parties would be pretty happy!
Statistically, and as grim as it sounds, you are much more likely to become incapacitated (whether due to injury or a serious illness) than you are to pass away during your working life. As such, Term Insurance tends to offer a higher lump-sum level of coverage for a lower premium versus other types of cover e.g. specified illness cover.
We consider term life insurance to be a good first step level of cover, particularly for new parents, newly weds or anyone without any other insurance cover in place.
To give an idea of life insurance pricing in Ireland, for a couple where both partners are in their late 20s / early 30s and neither partner smokes, a 25 year, €350,000 term assurance policy will cost (at the time of writing) approximately €35 per month or €420 per year – both partners would be covered i.e. if either were to die, the lump sum would be paid out to the surviving partner. This level of lump sum represents approximately 10 years of after-tax income assuming a gross salary of €60,000.
We generally recommend including a conversion option in the life insurance policy. This means, using the example in the previous paragraph, at the end of the 25-year term you will have the option to continue with the policy for a second term regardless of your changed medical circumstances i.e. you will not need to provide any additional medical information or be asked to take a medical as a pre-condition to renewing the policy – this is quite an attractive option, and it is a cost-effective alternative to taking out an expensive whole of life policy.
We usually advise 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 i.e. if both parties die, the policy will pay out a lump sum for each party. Joint life means that the policy pays out once i.e. on the first death, of either partner.
If you would like to review your financial plan, or if you are considering taking out a life insurance policy, we would be happy to meet with you for a preliminary consultation. While you don’t want to have too little coverage, you don’t want to have too much coverage either – we will help you formulate a plan & hopefully provide you with some peace of mind when it comes to your finances!