A Guide to Life Insurance

Introduction

Paddy Compare allows you to compare life insurance from insurance brokers throughout Ireland. This life insurance guide is designed to provide answers to some of the most commonly asked questions. This guide has been prepared for information purposes only and does not aim to advise in any way. Paddy Compare recommends that you should always contact and discuss your policy in full with your financial broker or adviser before your purchase.

What is life insurance?

Plain and simple, life insurance can help protect your family financially should something ever happen to you. Yes, no one wants to think about it, but unfortunately death is a fact of life and it can happen anytime. Therefore it is essential to have a plan in place that can protect your family financially in the event of your death.

If you die suddenly as a result of an accident or illness, would your family be able to cope? Your income coming into the household would stop immediately putting significant financial strain on your family. Would your partner be able to provide for your children without you? Any future plans for putting your children through college or helping them buy their first home could all be lost. Loans may become repayable and inheritance tax may be due on your untimely death. Yes, there are state aids and benefits available such as widows/widowers pension, but amounts are low and only cover the basic necessities.

All hope is not lost; with the right life insurance policy in place the insurance company will pay a cash lump sum to your family on your death. This payment could help your family maintain their standard of living, pay off any loans and plan for their future. Yes, it will cost you and you will have to pay a small monthly premium but this is a small price to pay to ensure your family's protection. You insure your car, so why not protect your family? Give yourself that peace of mind, get a life insurance policy, it could be the most important financial decision you ever make.

Do I need life insurance?

Think of it this way, if someone would suffer financially from your death then you need life insurance. Therefore there are many different categories of people who need cover to include:

Parents: As a parent you know how much your children rely on you to support them in their everyday life. From food, clothing, education and medical expenses, the bills can really add up. A young family has greater financial needs than a more mature family. If something unexpected was to happen to you would your family be able to maintain their standard of living? A life insurance pay-out of €100,000 would cover a family with monthly outgoings of €1,500 for 5 and half years.

Sole earner: if you are the sole breadwinner in the household, without life insurance your loved ones may not be able to afford to pay the mortgage, rent or other living expenses if you were to die. Life insurance is essential if you have a partner or children who are dependent on your earnings.

Self-employed: if you run your own business and are a self-employed person, you will not be entitled to State disability payment should you not be able to work. Income protection can cover you and provide you with 75% of earnings should you become unable to due to illness, injury or disability.

Single: if you are a single person with no dependants then it is probably an unnecessary expense. However, if you have a mortgage on a property you will still need mortgage protection cover.

Retired: if you are an elderly person of retirement age and all of your children have left home, you may not want to consider life insurance. However, some still decide to take out a policy to cover funeral expenses or inheritance tax.

You may not need or may need less life insurance cover if:

  • you do not have any persons dependent on your income;
  • you receive death-in-service benefits through your employment or pension plan;
  • you have sufficient income, savings or investments that could provide income; or
  • your partner earns enough money to cover themselves and any dependants.

As every person's circumstance is very different, it is important to discuss your needs with a financial broker. Whilst the personal loss of losing a loved one can never be overcome, life insurance can at least lighten the burden by taking care of any financial worries.

How much life insurance do I need?

Arguably this is one of the most important questions to consider when you are thinking about taking out a life insurance policy. Figuring out this amount isn't actually as hard as it seems. The amount of cover required will vary for each person but in general it must be large enough to:

  • maintain your family's standard of living;
  • cover your mortgage or any other loans; and
  • cover any other costs such as living expenses, school or colleges fees.

The simplest way for you to work out how much life cover you might need is to think of the amount of money you would need to cover all of your outgoings if something happened to you. Use Paddy Compare's four step guide to calculate an approximate life cover amount that you may need:

  • Step 1:  calculate your total yearly family outgoings to include; rents, mortgages, loans, household costs, electricity, gas, heat, water, TV, phone, insurance, children's education, childcare, food, clothes and anything else you can think of. It may be more useful to do this for a month and then multiply by 12.
  • Step 2: work out how long you need life cover for i.e. term?
  • Step 3: include any additional costs that may arise as a result of your death, such as funeral expenses, loan repayments and inheritance tax.
  • Step 4: Simply multiply your total yearly outgoings figure from 'step 1' by the term from 'step 2' and add on any other costs from 'step 3'. This basic calculation will give you an estimate of the amount of life cover that you may need and one that can be used as a starting point for discussion with your adviser.

How long do I need life cover for (the term)?

Most people will take out their life insurance to cover a term of between 10 and 20 years. You may wish to cover your family until your children are 25 years old and finished college or University. The term therefore will depend on the age of your family and could mean a term of 20-25 years for a young family or a term of 5-10 years for a more mature family. Certain policies will cover you for your whole life and therefore deciding the term is not so important.

Type of life insurance policies available?

Choosing the right life insurance policy can be difficult as there is a range of different policies to choose from. The most common types of cover are term life cover, whole-of-life insurance and mortgage protection insurance. You can opt to get a joint policy or a dual life policy for you and your partner/spouse. There are also a range of policy add-ons to include conversion, indexation and income benefit. We will now review each option in more detail below:

Term life insurance: this is the most popular (often referred to as level term cover) and most affordable type of life insurance policy. You simply must decide the amount of cover you need and the term. The policy will then pay your family a lump sum if you die within the term, no benefit is paid out if you don't die during the term. This policy does not cover you for your whole life and thus is cheaper than whole-of-life cover. For example, if you take out a term life insurance policy for €100,000 for 10 years (the term) and die within the term, your dependants will receive €100,000. Generally, no claim will be paid out if your death was caused by suicide within the first 2 years of the policy or where the death is caused by a medical condition that you had when you first applied but did not disclose.

Whole-of-life insurance: this type of policy provides you with life cover for your whole life and therefore the 'term' is not applicable. Assuming you have made your regular payments, this cover will pay a lump sum to your family when you die. These policies are more expensive due to running for your whole life and are more commonly used by older people to cover potential funeral costs and inheritance tax bills on death. Some whole-of-life insurers will invest the monthly premiums paid into investment funds which exposes you to risk and may result in an increased premium.

Mortgage protection insurance: this policy pays off your mortgage in the event of your death. It is a relatively cheap form of life cover and is usually required by a bank to secure a mortgage before a drawdown. It is designed to pay the remaining loan balance to your lender and not to provide a cash sum to your dependants. Your mortgage protection cover reduces over the life of the policy in line with the reducing balance on your home loan, this if often referred to as 'reducing term cover'. Most lenders will offer mortgage protection as part of their home loan packages, but you don't have to buy it from the bank. In fact, you shouldn't and here is why. If you buy direct from the bank, the policy is non-transferable, however if you buy from a broker the policy is yours and you can take your policy with you should you decide to switch mortgage providers in the future. Also, lenders often only use one insurer and therefore it is important to shop around to compare prices and secure the best available deal on the market. Your mortgage premium is fixed and does increase during the term unless you change your mortgage. If you increase your mortgage borrowings or extend the life of the mortgage then you will usually have to get a new mortgage protection policy.

Income protection insurance: this policy protects your income and pays out 75% of your gross annual income should you become unable to work due to any illness, injury or disability. Would you have enough savings put away to cover 2 years' salary? Income protection is essential if you are self-employed and not entitled to state disability or a sole earner for a family. You may also be able to select a deferred period of for example 26 or 52 weeks at which point your monthly income will start. Income Protection cover is complicated and you should always discuss your requirements with your adviser. If you are employed you should ensure your plan ties into any sick pay that you may receive.

Over 50s cover: this policy is relatively new in Ireland is specifically aimed at those individuals over 50 years old. Anyone over 50 can get this policy regardless of their health. There are no medical questions and therefore you are fully covered on any pre-existing conditions after the policy has been in force for 2 full years. Should you die within the first 2 years, you will get back what you paid in. After that it takes the form of a traditional whole-of-life policy.

Critical illness cover: this cover (often referred to as serious illness cover or specified illness cover) will pay out a lump sum amount in the event of you being diagnosed with a particular illness as listed on your policy. Unlike other life insurance policies that pay out on death, this cover will pay you the money while you are still alive. You can then use the money to cover your day to day expenses, medical bills and to help you cope with your illness. Most insurers will have a long list of serious illnesses to include cancer, heart attack and stroke, however serious illness insurance does not usually cover common conditions such as diabetes or certain treatable cancers. You condition must match your policy's exact definition of the illness. This policy can be taken out on its own or added onto some life insurance policies.

Common policy optional extras:

Joint policy/dual life policy: a joint or dual life policy may be beneficial if you are in a relationship, married or live with your partner/spouse and have joint financial commitments. Such policies will result in cheaper premiums but will only pay out a lump sum when the first person dies (joint life policy) or a separate lump sum on the death of each of you (a dual life policy).

Conversion: this is an optional extra that can be assed to a term assurance policy that will allow you to renew or extend the term of your policy before the age of 65 and only for a small increase in premium. Such an option is often employed by young people and protects them in case their health would deteriorate in the future.

Indexation: this option allows you to protect against inflation decreasing the value of your cover over time. This add-on will therefore increase your premiums and cover annually but in some occasions at differing rates.

Income benefit: this option allows you to have an income paid to your family as opposed to a lump sum or in addition to a lump sum. This is often used where you have a person has a young family and wishes to provider for their day-to-day living expenses until they reach maturity.

What is death-in-service?

Death-in-service benefit is a life insurance benefit that is operated by an employer and will pay a benefit to the employee's family on the event of your death during your working life. Your death does not have to have occurred as a result of a work related incident but you must be on the payroll when you die. Payments are made as a tax free lump sum and policies are linked to a company pension scheme. Death-in-service benefit is NOT a substitute for life insurance and typically will only pay out around 4 times your annual salary on your death. Whilst this could be a significant amount of money it may still not be enough to cover costs on the event of your death as advisers would usually recommend life insurance cover of approximately 10 times annual salary. You should always check with your employer to see if this is something that is included within your remuneration package.

How much does it cost?

Life insurance can cost as little as €10 per month but the cost can vary greatly depending on a number of factors, to include:

  • Your age;
  • How long you want the cover to last (term);
  • The level of cover you want;
  • Your health and whether you smoke or not;
  • Type of plan you choose and whether you need optional extras; and
  • Your occupation (for income protection).

Certain risk factors are taken into account when the insurer is compiling your policy and calculating your premium, to include:

  • Age – risk of death increases with age and so the longer you wait to take out the policy the more expensive the premium will be;
  • Gender – as life expectancy is shorter for men, premiums for men will be more expensive;
  • Smoker – smoking increases your risk of death and therefore premiums are much higher and in some cases double the cost;
  • State of health – if you have present medical conditions or a history of family illnesses this may lead to a higher premium; and
  • Occupation and lifestyle – if your occupation or lifestyle would increase your risk of sudden death, then your premium may go up.

Life insurance can be very affordable and is a relatively cheap price to pay when you consider the benefits. When you think you spend €30/40 per month on your mobile, broadband or TV, why not spend an extra €10/20 and cover what matters most, you and your family.

What happens if I stop paying?

If you miss or stop paying your monthly premiums your policy will lapse, usually after 30 days. Some insurers may allow you to restart your policy provided that you pay up all outstanding amounts. If you stop paying for a few months you may not be able to revive your policy and lose your cover. You will then have to re-apply, provide updated health information and pay a higher premium because you are older.

Can I cancel my policy?

Yes, you will be able to cancel your life insurance policy by writing to your insurer. Your insurer will then cancel your policy and you will not be covered. If you decide to take out a different policy with another provider, make sure your new policy is in place before cancelling the old one.

What information do I need to provide?

You will be required to complete an application form called a 'proposal'. The form will ask you details about you, your occupation, your health, existing medical conditions, name and contact details of your doctor, your lifestyle, your smoking status and drinking habits. Your insurance provider may contact your doctor to discuss your health in more detail.

What happens next?

In most cases, the life insurer will accept your application and your life cover will be activated at normal policy rates. In some cases, there may be a delay in approval pending the result of a medical procedure or may have increased premiums due to the risks involved. Only in very rare circumstances would the insurer decline the policy if they considered the risk to be too great.

Do I need a medical?

Most insurers will not require you to have a medical unless you want to take out a lot of cover, are of old age or have a history of poor health.

What if I smoke?

We all know the costs of smoking is huge and with nearly 7,000 people a year in Ireland dying from smoking related illnesses that is around 19 people per day that pay the ultimate price. It is facts like this that makes the insurer increase premiums for smokers and in some cases double. Some insurers may be more leinient than others when it comes to smoking occasionaly but you shouldn't take the risk. E-cigarettes don't count as not smoking as the health benefits are yet to be confirmed. The insurer will also assume your application is honest but in some cases they may ask you for a urine test. What is the best thing you can do? Quit!

What about funeral costs?

With the average funeral in Ireland costing approximately €5,000 it is important to factor this into your life insurance plan and is often included within whole-of-life policies. The cost of the funeral will depend primarily on the location of your burial plot, with some plots in Dublin fetching upwards of €16,000, charities such as St. Vincent de Paul encounter a large number of people that get into financial difficulties as a result. Some funeral costs saving tips have been listed below:

  • Cremate, don't bury – with the burial plot costing anything up to €16,000 (Deansgrange cemetery) depending on location, this is the single biggest cost of a funeral and doesn't include the cost of internment (digging and closing the grave) is roughly €1,000. Cremation will only cost around €600 with internment of ashes being approximately €500;
  • Do not pay in advance – some cemeteries are costing up to double to for advance grave purchases;
  • Use recycled graves – these graves are found in the 'gone over' section of the cemetery and are areas of infill where bodies were buried many years ago. A recycled grave in Glasnevin or Mount Jerome would cost you from €700 to €3,000 as opposed to €4,000 to 13,000 for a new one;
  • Use your home – by having the wake at home you could cut down on extra hearse, limo and church fees;
  • Nothing fancy – you must ask yourself is a top of the range casket, extra limos and a lot of flowers really needed?; and
  • Funeral grant – special funeral grant of €850 is available if someone dies at work from Department of Social Protection. You should also check your local welfare office for any financial grants available.

Tax implications?

Despite the fact that the life insurance benefit is paid out as a tax free lump sum, the persons inheriting the money may be liable to pay inheritance tax, depending on their relationship to you and the value of your estate at the time of your death. Inheritance tax rates are set by the Revenue Commissioner and should be discussed in detail with your adviser. Life insurance cover can be arranged to pay any potential inheritance tax liabilities to ensure that your dependants receive their benefits tax free.

Tax relief on insurance premiums?

Income tax relief is generally not available for life insurance premiums. However, if you are self employed or working for an employer where there is no pension provided, you will be able to take out a special life insurance policy that is payable to your estate and premiums may qualify for income tax relief, within certain Revenue limits.

Shopping around for life insurance

As you can see there is a lot to think about when it comes to life insurance and picking the policy that is right for you and your family. Therefore it is important to shop around to ensure you can get the best advice and quality life insurance that will cover you for the future. At Paddy Compare you can compare life insurance from a range of brokers from across Ireland by just completing one page life insurance quote form. Once complete our brokers will contact you, discuss your needs, offer advice, compare premiums from different insurers using different amounts of cover and terms, and recommend a policy that suits you.

Things to do…..

  • Check if you have any death in service benefits through your employment;
  • Read this article to familiarise yourself with the various types of policy available to you;
  • Calculate the amount of life insurance you need and over what term it will be needed;
  • Complete your application form truthgully;
  • Keep your premiums up to date otherwise your policy could lapse and you will not be covered;
  • Review your cover regularly, particularly if your circumstances change for example if you become pregnant; and
  • Compare life insurance at Paddy Compare.

Things NOT to do….

  • Do not change policy unless you definitely need to as premiums could be greater because you are older;
  • Do not buy life insurance unless you need it; and
  • Do not just settle for the policy offer by your bank, let Paddy Compare put you in contact with a broker that can help.

Real life examples...

NAME: Laura and Bryan
DETAILS: Aged 28, no children, non-smokers
PROTECTION: Mortgage protection
Having recently got married, Laura and Bryan have decided that the time is right to purchase their first home in Dublin. Laura works in social services and Bryan is a trainee accountant. As home buyers Laura and Bryan will need Mortgage Protection in order to ensure that they can continue to cover the mortgage repayments in the event of a death.

NAME: Sarah and Mark
DETAILS: Aged 48, two kids, non-smokers
PROTECTION: Term life insurance and income protection
Sarah and Mark from Cork have two children, Sarah is a self employed beautician and Mark is a taxi driver. As both are self employed it was important that they get covered should one of them die to protect and provide an income for their family. Sarah and Mark started a term life insurance policy with income protection to ensure they'd have lump sum if either of them should die or become ill and become unable to work.

How do I get life insurance?

Step 1: Quote – enter your details using Paddy Compare's online life insurance quote form by clicking here;
Step 2: Choose – our specialist life insurance brokers will contact you with advice and tailored quotes to suit; and
Step 3: Apply – complete your application form and pick the quote that suits you and your family.

How to save money?

  • Compare premiums – use Paddy Compare and let us compare the market for you with just one form;
  • Pick the right policy – the term life insurance policy is cheaper than a whole-of-life policy but is it right for you?;
  • Set the right term – is your term linked to your mortgage e.g. 20 years, this might be long enough;
  • Buy life insurance when you are young;
  • Joint policies can be cheaper but only pay out on the first death;
  • Watch our for costly extras such as critical illness cover and plan for tax;
  • Stop smoking; and
  • Make sure you really need life insurance?

Why Paddy Compare?

Research by Irish Life revealed that 1 in 2 adults in Ireland have no life insurance at all. Yes, life insurance can be complex but our guide aims to simplify this product into one that has meaning and a benefit to you and your family. Everyone's situation is different and unfortunately there is no one size fits all answer. There is no perfect policy but if you use Paddy Compare our life insurance experts will contact you with free advice and competitive quotes to ensure you get the right policy for you, your lifestyle and your dependants. We offer a free and independent service, so get a life quote and get covered today.