life cover - frequently asked questions

Here at The Wealth Shop we feel it's very important that you are able to make an informed decision in relation to your life cover, so we hope this page is useful. If you still have queries then please don't hesitate to contact us and one of our advisers will be happy to help you.

What does “Decreasing Term” mean?

This means that the payout or benefit from your policy will decrease every year by a certain percentage. It is typically a feature of “mortgage protection” type policies and is designed to decrease as your mortgage balance decreases. This is why this type of policy typically has a much lower cost per month than other types of cover. However, you should be aware that most of these types of policies decrease at a rate of about 6%-8% per annum which means that there is a danger that the payout may actually be less than the balance of your mortgage and you may have to provide the cash balance yourself to clear the mortgage.

For example, if you took out a mortgage protection policy for €300,000 in 2008 for a term (number of years of the policy) of 20 years, and you pass away in 2018, ten years later then the payout will be approximately €200,000 – assuming an annual decrease rate of 6%.

This is the most common type of policy that was sold by banks and brokers in the past and in our opinion while often lower cost they are poor value for money in that you pay the same amount into the policy each month but the payout decreases every year, and you may end up having to pay a cash lump sum from your own funds to clear the mortgage. Also, there is no provision for any cash to be paid to your spouse or family for funeral and other living expenses, especially if the person who died was the main income earner.

What does “Level Term” mean?

A level term policy operates largely in the same way as a mortgage protection policy with the main difference being that the payout does not decrease over time. This means that if you took out a level term policy for €300,000 in 2008 for a term (number of years of the policy) of 20 years, and you pass away in 2018, ten years later then the payout will still be €300,000 (assuming you don’t choose the Indexation option). This means that if your mortgage balance was €200,000 then €100,000 cash is left over for funeral and other living expenses.

While this type of policy will typically cost more per month than a mortgage protection policy we feel it offers better overall value for money since at least your payout does not decrease over time and there is a provision for a lump sum of cash to be paid to your spouse and/or family in the event of your death.

What does “Indexation” or “Inflation Protection” mean?

Both of these options mean the same thing – that you can choose to increase the payout and cost per month of your life cover each year to protect against the effects of inflation. For example, it is likely that a payout of €300,000 in 20 years is not going to be worth the same as it is now, due to the natural increase in the cost of living.

This option aims to “protect” your payout against the increase in cost of living by increasing the payout and cost per month by a certain percentage. Bear in mind though that most companies will increase the payout by say 5% but will increase the cost per month by either 7.5% or 8%. This means that a policy payout of €100,000 and a cost of €50 per month in 2010 will payout €105,000 and cost €53.75 or €54 per month and so on.

What does “Joint Life First Event” mean

This means that while both persons named on the policy are covered for the amount of the policy, only one payout is made. That payout is made only on the death of the first life insured. This is typically a feature of mortgage protection policies and another reason we do not recommend them. For example, if a couple took out a joint life first event policy for €300,000 in 2008, for a term of 20 years and the main earner passed away in 2018, ten years later then whatever the policy payout had decreased to is paid to the surviving spouse. When the surviving spouse passes away there is no further payout made to his/her children or family.

What does “Dual Life” mean?

This type of cover means that both lives named on the policy are covered for the amount specified independently, ie each is covered separately and the policy pays out on the death of both persons insured. For example, if a couple took out a dual life policy for €300,000 in 2008, for a term of 20 years and the main earner passed away in 2018, ten years later then a payment of €300,000 (assuming no Indexation option) is paid to the surviving spouse. When the surviving spouse passes away there is a further payout of €300,000 made to his/her children or family. The total payout from this policy is therefore €600,000.

Again, this type of policy typically costs more than a joint life first event policy but in our view is better value for money, in that it covers you both. This is particularly important in the unfortunate event that the main earner becomes unemployed and his/her spouse must return to work.

What is Serious Illness Cover and do we need it?

Serious Illness Cover will pay out a cash lump sum in the event of the insured person suffering from one of a list of serious illnesses covered by the policy (bear in mind that different life companies cover different illnesses so it is worth getting advice before choosing). The list typically includes illnesses such as heart attack, stroke, cancer etc. Adding Serious Illness Cover to your policy is generally recommended since your employer may not adequately cover your income should you suffer a serious illness. If you are self-employed you will not be entitled to any social welfare benefit, given you will be a class S PRSI payer. However, it is a matter of personal choice and is not required by a bank for mortgage protection purposes.

What are Accelerated and Standalone Serious Illness?

Accelerated SIC means that if you take out a Life Cover policy for €300,000 and add Serious Illness of €100,000 then in the event of you suffering one of the covered serious illnesses the policy will payout €100,000 but will also reduce your life cover by the amount paid out, in this case to €200,000 (€300,000 less €100,000). Because of this deduction this type of SIC is generally lower cost than Standalone SIC.

Standalone SIC means that in the above example your life cover amount of €300,000 would not be reduced by the €100,000 serious illness payout so in the event of your death a further payout of €300,000 would be paid. This type of cover generally costs more because the amount of potential payout is actually €400,000 (€300,000 life cover plus €100,000 serious illness cover).

How much life cover is recommended?

As mentioned above if you are taking out a policy for mortgage purposes then you will be required to take out cover equal to the amount of money borrowed.

We always recommend you take professional, independent financial advice when considering taking out a policy of any kind as the longer you leave it the more expensive the cover becomes. This is why it’s so important to take advice and ensure your future needs are covered from the beginning. Life cover is supposed to provide you and your loved ones with a cash lump sum in the event of a death.

For every client our advisers carry out a fact-find to determine your overall circumstances. They then perform a detailed set of calculations, based on your circumstances, in order to calculate what amount of cash lump sum would be required by your spouse/family to live on in the event of your death.

Call us now on 1850 88 24 24 to arrange a no-obligation, confidential appointment with one of our advisers and they will happily provide you with a detailed set of quotes within the hour.

Which type of policy is required for a mortgage?

When drawing down a mortgage banks and other lending institutions generally only require a life policy for those named on the mortgage equal to the initial amount of money borrowed, and for a term equal in years to the term of the mortgage. They do not typically specify what type of policy you should take out.

This means that you are free to change your level and type of cover any time in the future as long as the current balance and term are covered. Many people who took out mortgage protection policies in the past are now realising that they offer no real protection or cover for the surviving spouse in the event of the untimely death of one of the lives insured. As independent financial advisers we can very often get them a far better level of cover that gives them peace of mind knowing they are adequately covered.

Which life insurance company should I/we choose?

Again this is a personal choice. Since we work with all major life insurance companies we will present you the prices offered from all of them, not just one. We can give you our reasons for recommending one particular life insurance company, and will always educate our clients about each policy type so you can make an informed decision but ultimately the choice is yours.

We would not recommend choosing on price alone. Often, if clients are taking out SIC we recommend that they look closely at the illnesses covered by each company. A policy from one company may be €35 per month but another company who covers more illnesses may only cost €35.15 and may therefore be more suitable to your needs.

What does “loading” or “special terms” mean?

Loading or special terms on a policy means that the life company considers you to be a higher risk in health terms and therefore more likely to make a claim in the future. They will therefore increase the cost of your cover by a specified percentage which depends on the facts of each case. The increased cost can be for a wide variety of reasons ranging from your previous medical history, your height to weight ratio, or indeed your pastimes and family history. For more information on this please feel free to contact one of our advisers who will be happy to explain this further.

I last smoked 9 months ago, am I considered a smoker?

Life insurance companies will naturally increase the cost of your life insurance if you are a smoker. The vast majority of companies consider you to be a smoker if you have smoked any tobacco product within the last 12 months of you applying for life cover.

So, if you'd like to have an independent review of your life cover to see if you and your loved ones are adequately protected simply contact us today. Just click on one of the links below. We'd be delighted to hear from you.