What is Life Cover?
Life cover pays out either a lump sum or an income in the event of your death. Life Cover is purchased by individuals who want their family to receive a lump sum of money if they die prematurely. The money can be used to ease the financial burden on a family after bereavement.
Benefits of Life Cover:
- In the event of death, a tax free lump sum of money is paid to the insured person’s estate.
- It can be a way to leave a substantial amount of money to your family on your death that will allow them to rebuild their lives after your untimely death.
- Financial obligations can be paid off in full with the Life Cover amount insured (mortgages and other loans)
- The life insured can leave a strong legacy behind, even if he/she owns very little or has limited savings.
- It is also a way of ensuring that any of debt does not pass onto the children, spouse if the life insured passes away prematurely.
- The premiums are relatively cheap in comparison to other types of Cover such as Serious illness or Income Protection.
- The premium can be made to fit the clients affordability.
- Both Spouses can be covered on the one policy.
- There is huge flexibility with the policy in relation to Price, Sum Insured, and the term of the policy. (Please read on for a more detailed explanation of the different options).
Ultimately, the peace of mind that comes from knowing that should you die during the term of the policy, your family’s financial needs can be looked after.
Types of Life Cover:
- Level Term:
This type of life cover makes a one off payment if you die during the term of your policy. Your dependants could use this money to live on for a period of time, or they could use it to pay for costs such as childcare costs, college fees or outstanding medical bills.
- Reducing balance/Mortgage protection:
Reducing balance life cover is also known as mortgage protection. It helps secure the ownership of your home by paying off the outstanding mortgage if you die within the specified term. Your family would therefore be relieved of the financial burden of repaying the mortgage, should the unexpected happen. When you take out a mortgage, you can get cover for a number of serious illnesses or in the event of permanent total disablement. You will then pay a premium each month for the duration of the mortgage term. If the unexpected happens and you die, or are struck by a terminal illness before the end of the term, the policy will pay off the mortgage with a lump sum. Your cover will decrease over the term of the plan, broadly in line with the capital outstanding on your mortgage.
- Peace of mind: This plan will ensure your mortgage is cleared if you die.
- Protection: Your family is safeguarded from a substantial financial burden.
- Increased security: You can add cover for many serious illnesses and disabilities if you wish.
- Flexible: Option to increase cover on certain life events (Marriage, Mortgage or Maternity).
- Whole of life (Royal London):
These policies do not have a set term but carry on for as long as you pay the premiums. This means that there is always a lump sum paid out on death. Some policies have an investment element and this cash in value can be taken before death. These investment type policies might only have a small amount of life cover in the early years. Whole of life policies can be expensive but they are useful if you want a guarantee that your policy will pay out no matter when you die. They are used mainly to pay an inheritance tax bill or for passing on money after death. If you take out a whole of life policy with someone else, it should pay out when the second person dies. If these policies are written in trust, the proceeds won’t be included in your estate for inheritance tax purposes. Be careful with these policies as sometimes the premiums aren’t guaranteed and will increase as you get older.
The bottom line with these policies is that they guarantee to pay out as long as you keep paying the premiums. However these premiums will increase as you get older and may become unaffordable.
- Whole of life (New Ireland):
This policy pays out a lump sum of up to €50,000 on death. The difference with this policy and the policy explained in point 3 above is that it will be paid out even if death occurs following the end of the term of cover for the main benefits. If, for example, your term of cover ends at age 65 and you die at age 90, this benefit will still be paid at 90.
The bottom line with these policies is that it guarantees to pay out and is a cost effective to guarantees that your funeral expenses (and a bit extra if you wish) is paid out when you die.
- Endowment Insurance:
This is term life insurance with an investment element. The investment builds up during the term of the policy and can be cashed in during the term or taken as a lump sum when the term ends. Often the amount of life cover is small. However, when used as part of an endowment mortgage, this type of insurance is designed to pay off the outstanding loan either at the end of the term or if you die before this. In reality, these policies are rarely sold alongside new mortgages and are usually sold more as savings and investments. These types of policies are very rare nowadays.
Other Important Terms of Life Cover:
This provides cover for two people, for example yourself and your partner, who are both insured for the same amount. But this type of policy only pays out on the death of the first person if that person dies within the term of the policy. The policy ceases on the death of the first life insured.
This type of cover is provided separately for the two lives. As the two lives are covered independently, a claim for one of the lives has no impact on the level of cover relating to the other life. This policy will pay out on both lives if both lives die within the term of the policy.
By selecting to include a Conversion Option on your policy you obtain a benefit which gives you the option to convert into another policy, without having to provide further evidence of health. So for instance, if an individual inherits an illness during the term of his/her policy, he/she does not have to be medically underwritten again. If they did into have this conversion option, they most likely would be declined the cover again as it is in effect a brand new policy. A policy can be converted up to the age of 85 with some insurance companies. It is a fantastic benefit and should always be used as it a very cheap additional benefit to a policy.
The death of a child is certainly not something anyone likes to think about, especially when it is your own child. A sum of money will be payable if a child of yours dies during the term of the policy. This benefit is available to with most life Cover and serious illness policies.
Life Cover policies Pay out on Terminal illness:
In the event that you are diagnosed with a terminal illness and have less than 12 months to live, you get paid the full amount of your life cover as at the date of diagnosis.
Death Claims 2016 –
The Probability of Dying
*The figures below show the probability of dying in that decade.
e.g. A male aged 40 has a 2% chance of dying before he is 50.