If the recent global pandemic has thought us anything, it is that life can be unpredictable.
Considering the thought of yourself or a loved one passing away unexpectedly is not something any of us like to think about. But putting plans in place now can give you massive peace of mind that your family will be kept on financially solid ground, should the unexpected occur.
A study done in 2022 called the ‘Insurance Barometer Study’ showed that nearly half (44%) of households said they would face financial hardship within six months if the primary wage earner were to die prematurely. For 13% of households, financial hardship would hit within one month.
As a Financial Advisor, I have helped people in a range of different situations put plans in place to help safeguard their finances for themselves and their families. Of course, the best-case scenario is that you will never need to use a life-cover policy. But what if you do?
Recently, I met with a young couple who had just bought their first home and felt it was a good time to get their financial ducks in a row before potentially starting a family. It was an absolute pleasure to give them the guidance they needed to put themselves on the right track. What I hadn’t expected was the call I received just a few months later. The young man had been diagnosed with a terminal condition. He knew his wife would be needing to make use of the cover they had put in place much sooner than either of them had imagined.
Calls like this are certainly not a nice part of the job. But knowing that the advice I had given this couple was going to provide my client with a financial cushion at the toughest time of her life was a stark reminder of the value of making a financial plan.
One thing that can sometimes put people off starting a life cover plan can be the complexity of the options available. Below I have broken down some of the main facts you need to know before putting your plan in place.
What is Life Cover?
Life Cover is an insurance policy that pays out a sum of money in the event of death. These policies are designed to provide financial support to your family should you pass away.
There are different types of Life Cover offered by the various Life Companies in Ireland. A broker will be able to shop the marketplace for you to find the policy type that best suits your needs at the most affordable price.
What are the different types of Life Cover?
There are 3 main types of Life Cover available:
- Term Assurance
Term Assurance is a life cover policy that provides cover for a specific length of time.
For example, Louise and Patrick, a couple both currently aged 35, might decide to take out a Term Assurance policy which will run until they reach age 65, i.e. a 30-year term. They decide on this term as their mortgage will be paid off by then, coupled with the fact that their children will be grown and no longer dependent on them. Therefore, the financial burden should either / both of them pass away after this time is significantly reduced.
Term Assurance policies often come with extra options available, such as guaranteed premiums and inflation protection. Reviewing these options with your broker before making any decisions will help ensure you have the right cover for your circumstances
2. Mortgage Protection
Mortgage Protection is a life cover policy that is directly linked to your pension.
If you were to pass away during the term of your mortgage, your mortgage protection will pay off the remaining balance of the mortgage. This means that your surviving spouse or family members will not be left liable for any remaining debt associated with the loan.
When you apply for your mortgage, your lender will require you to take out a Mortgage Protection policy and provide proof of same.
3. Whole of Life Cover
Whole of life insurance cover does not have a fixed end date and so covers you for life. Upon your death, a payment will be made to your next of kin.
As this type of life cover is guaranteed to pay out, it is often used for estate planning, or to cover funeral expenses. The downside of this type of cover however is that it can be significantly more expensive than Term Assurance.
How much does Life Cover Cost?
So speaking of expense, how much is life cover likely to cost you? Well, the price of life cover can vary drastically based on many different aspects;
- Your circumstances at application stage
When you apply for cover through a Life company, they will assess your current circumstances and base their quoted price on the likelihood of you making a claim. They will take into account your age, medical background, the term of cover you are applying for, and the amount of cover.
2. Type of cover
As mentioned above, the type of cover you opt for can drastically affect the cost. Whole of Life cover is generally the most expensive, due to the very high likelihood of the policy paying out. Term Assurance can be less pricey as it is only active for a specified length of time. Mortgage Protection is usually the cheapest form of cover as the amount to be paid out will reduce as your outstanding mortgage reduces.
3. Policy options and Add-ons
Different life companies will offer variations and optional add-ons to their Life Cover offerings. Some of the most common of these are;
- Inflation Protection
- Guaranteed / Reviewable
- Hospital Cash
- Income on Death
- Conversion Option
Your advisor will talk you through these options so you can create the best plan for you.
How much cover do I need?
You have decided that life cover is a priority for you and would like to go ahead and apply. But now you have a difficult question to answer: How much life insurance do I actually need?
There’s no obvious answer to that question and it will vary from person to person. One common rule of thumb you may hear used is to multiply your annual income by ten. A more accurate way to look at it would be to calculate your family’s total needs and subtract the assets that could be used if you passed away. Coming to the right figure for you while keeping the cover affordable can be a tricky balance to find, so speaking to an advisor who can talk you through the process could be very beneficial.
How does the application process work?
There are a few steps that you will need to go through to put your life cover policy in place. A Financial Advisor / Broker may be your best port of call to get the process started.
- Before starting, your Advisor will help you decide on the level of cover, policy provider and policy options, as well as giving you a guide price for your proposed policy
- An application form will then need to be completed (this can usually be done online) which will be reviewed by the insurance underwriters
- If you have any pre-existing medical conditions, you may be asked to attend for a medical / provide a doctor’s report to support your application
- Once your application is accepted, you will be provided with a policy document, as well as Terms & Conditions. These are important documents as they may be required in order to make a claim on your policy.
If you would like to look at your options for Life Cover, you can book an appointment with an IPF Advisor, visit www.ipf.ie/life-cover.
Neil McGroarty, Regional Manager.