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What is Life Insurance?

life_insurance

When Pablo Picasso, the Spanish artist, was a schoolboy, he was terrible at maths. Whenever the teacher had him write a number on the chalkboard, he saw something different.

The number four looked like a nose to him and he kept doodling until he filled in the rest of the face.

The number one looked like a tree; nine looked like a person walking against the wind, and eight resembled an angel.

Everyone else in the classroom saw numbers on the chalkboard; Picasso saw pictures.

So what would Picasso see if he was asked about Life Insurance?

Would he see a safety net, a smoke alarm, an airbag or even a pile of cash?

Life Insurance is all these things. It’s a form of protection you need but never want to use.

Or would Picasso see Batman?

A silent guardian, a watchful protector. A dark knight.

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Because that’s what Life Insurance really is. It stays in the background, ready to be called upon to save your family from financial hardship should anything happen to you.

But unlike Batman, you have to pay this silent guardian.

Every month you’ll pay a premium to be protected.

Come to think of it, maybe Picasso would see Life Insurance as The Godfather instead…

How Does Life Insurance Work?

Okay, so that’s enough foostering about with Batman. It’s a pretty sound analogy, but let’s look at the hard, cold reality of Life Insurance.

Imagine if you died.

Here’s what would happen:

Your family would lose your income, or if you’re a homemaker, they would lose everything you contribute.

They’d be devasted, of course, but the reality of the financial stuff would kick in far sooner than you think.

Genuinely, could your family cope without your income?

What about minding the kids? Or paying the mortgage and bills and for the other good stuff that makes up your lifestyle?

That’s before you consider the several grand your family will have to cough up for your funeral.

It’d be crap; of course it would. And it’d have a knock-on effect on your future plans like putting your nippers through college, helping with the deposit on your child’s first house, or contributing to one of your kids’ weddings.

These are the dreams we all have for our children but if the worst happened, these dreams could vanish into thin air.

What is Life Insurance?

Life Insurance is a tax-free cash lump sum paid by your insurance company to your family.
It’s your gift to them to help them cope financially even though you’re no longer around.

It’s as simple as that.

For you, it’s peace of mind knowing that whatever happens to you, the people you care about the most in the world will be taken care of.

For you, it’s a good night’s sleep.

For you, it’s kissing your kids goodnight with a clear conscience, safe in the knowledge you’ve put them first and did everything you can to safeguard their future.

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Ultimately, Life Insurance is a necessary evil if you have a family.

There are two main types of insurance you can take out on your life:

  1. Life Insurance – a tax-free lump sum that’s paid out to your family on the event of your death. They will use this to replace your income.
  2. Mortgage Protection – you have to get this if you’re buying a mortgage in Ireland. It just covers the bank and clears your mortgage if you die.

There are two more big types of insurance you can also get. They’ll come in mighty handy if you ever fall ill, hurt yourself, or have to miss work for an extended period of time.

  1. Income Protection – pays you up to 75 percent of your income if you’re unable to work for longer than four weeks.
  2. Serious Illness Cover – a tax-free pay-out if you get sick with any of the serious illnesses covered in your policy, including heeby-jeeby-inducing diseases like cancer.

Essentially, Life Insurance and Mortgage Protection kick in should you die, and will benefit your family, while Serious Illness Cover and Income Protection are useful when you’re alive and not-so kicking.

The cover you’ll want to get will depend on your situation. Mortgage Protection is a have-to-have if you’re buying a house, while Income Protection is a must if you’re self-employed.

Life Insurance is the big one, then, while Serious Illness Cover is a solid extra if you can’t get Income Protection.

Types of Life Insurance

Up above, I walked you through the types of insurance. Now, Life Insurance is our numero uno for today, but I’ve got some more details for you before you sail off onto the internet and look at photos of a Pomeranian dressed like Paddington Bear.

First up, I’m gonna take a look at the two main types of insurance: Term Life and Whole of Life.

You’re probably thinking that they can’t be all that different… but you’d be wrong.

Term Life Insurance

You’ll be covered for a set amount of time (or a term) and your family will receive a pay-out if you die during that term – presuming, of course, that you don’t quit the policy or stop paying for it.

Term Life is cheap as you might not actually die during the term of your policy so the insurer can avoid paying out.

Whole of Life Insurance

It pretty much does what it says on the tin: you’re covered for the whole of your life. It will be more expensive than Term Life, because, you know, the odds of you dying are pretty high during your whole life!

You can learn more about whether Whole of Life or Term Life Insurance is right for you by clicking over here.

Right there.

Not here.

There.

Do insurers even pay out?

Yes, they really, really do.

I know you might be thinking that it’s all an elaborate ruse, but insurers actually pay out 97 percent of all death claims every year.

97 percent.

And the 3 percent that aren’t paid out are usually the applicant’s fault – they’ve lied or done something silly.

Hand on heart, if you tell the truth, the whole truth and nothing but the truth, and keep paying your premium, your insurer will pay out.

It really is that simple.

How much Life Insurance should I get?

“Okay, Nick,” you’re probably thinking. “I can see your point. I would like to pay Batman for his protection get Life Insurance to secure my family’s future. But how much do I need or what’ll it actually cost me?”

Well, dear reader (can I call you John?), it depends. The best way to think about it is how you’d like to leave behind that tax-free lump sum. You can either leave it in one big ole sum, or drip-feed it on a monthly basis to your fam – sort of like a replacement, cash version of you.

A better version of you, basically.

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Drip feeding it is more logical but leaving a sum could be useful if you have debts or you want your family to have a mad one once you’re dearly departed.

That’d be sound of you, John, now in fairness.

That’s your first consideration.

Your next is the amount of cover you’ll get.

You might be thinking, “I’m 40 now; I want 30 years of cover – so that’s 25 or so years of income to replace.”

That’s not quite accurate. For argument’s sake, let’s say you make €50,000 a year. You don’t need to multiply those 50 gs out by the 25-or-so years until you retire. For one, your mortgage will be paid off by your Mortgage Protection policy and for two, your expenses  (booze, bags, shoes) will disappear.

That’s several hundred grand you don’t need to worry about.

So think about it again. Most people don’t need nearly as much cover as they think.

Let’s say you’re looking at around €300,000 for those 30 years, on a dual policy for you and your other half. How much would that cost?

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For Dual Life (that’s two payments of €300,000 BTW), you’d be looking to pay anywhere from €51 to €73.

Break that down again and you’ve got coverage for you and your other half of €600,000 for €9 each a week.

Sure you’d be bananas not to at least look into it!

Over to you

If you’re like most of my clients, you’ll happily read articles. But when it comes to actually figuring out how much cover you need, you’d prefer to spend time looking at that Pomeranian Paddington Bear…or eating glass.

Never fear, that’s why I’m here

Complete this short questionnaire and I’ll tell you exactly what you need. You can then jump on the good ship Lion and we’ll arrange your cover from start to finish or you can say “Nick thanks, but no thanks.”

Nick McGowan
lion.ie | making life insurance easier.

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