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How Does Life Insurance Work In Ireland in 2024

Many people view life insurance as nothing more than a transaction—you give the insurer money, and the insurers pay you money if you die.

But what if we saw it as more than just paperwork?

What if we saw it for what it really is  –  a protective bubble around your family finances, ensuring the ones you love the most are secure regardless of what happens to you?

protective bubble

Looking at it in this way, life insurance becomes something you want to buy for your family rather than something you feel obliged to purchase.

Introduction to Life Insurance in Ireland: What You Need to Know

Home Insurance protects your house.

Imagine trying to rebuild a house if you didn’t have insurance!

Car Insurance protects your car.

Your insurance policy will pay out should your car get damaged, so you can repair it without putting your hand in your pocket.

While Life Insurance doesn’t apply quite so literally, it’s even more important as it protects your loved ones if you die during the term of your policy.

Human life can’t be repaired (well not yet anyway…give it a few years!) – if you die, you stay dead, so life insurance is vital to look after your family.

Look, you know it’s important, and you’re pretty sure you need it, but you have questions.

How about we start with the big one: “How does Life Insurance work?”

The Basics: What is Life Insurance?

I hate to be the one to break it to you, but you are a walking paycheque.

You work hard, get paid, and provide your family with all they need financially:

  • pay the mortgage
  • keep the lights on
  • buy the groceries
  • take a holiday

All the normal things that make life bearable.

But if you exit stage left, so does your pay cheque.

How screwed would your family be without that income?

Very, I would imagine…and that’s why Life Insurance exists – to protect them financially.

You choose a suitable amount of cover so that when you die, the insurer can pay your family a tax-free lump sum.

This magical thing called Life Insurance allows you to continue caring for your loved ones even though you’re no longer here.

life insurance is magic

Where Can You Buy Life Insurance in Ireland

You have three choices.

Two are bad. 🙈

One is good. 🙏

  • Direct from the insurer (you don’t get a choice of insurers)
  • Bank (you don’t get a choice of insurers)
  • From a broker (you get the widest choice of insurers)

Types of Life Insurance Available in Ireland

Let’s compare the two main types, term life and whole of life

Term life insurance

Here, you’re insured for a set number of years.

So, if you have a policy that covers you for 30 years, your family will receive a payout if you die in those 30 years.

When the 30 years are up, you no longer have coverage (unless you extend it).

Because coverage is limited by time, and you might outlive your policy, Term Life Insurance is the cheapest form of Life Insurance.

Of course, the idea of you outliving your policy has the insurers rubbing their hands with glee as it means they get to keep the money.

Whole of  life insurance

Whole-of-life assurance doesn’t have an expiry date.

Instead, it covers your entire life (as long as you continue to pay the premiums).

Because of this guaranteed payout, the premiums are higher than those of term life insurance.

Avoid Reviewable Whole of Life policies like the plague.

The insurer will review and increase your premiums to a level you can no longer afford as you age.

You’ll eventually cancel the policy, and the insurer will pocket all those sweet premiums.

If you have a Reviewable Whole of Life policy, you should consider replacing it with a Term or fixed price Whole of Life policy.

You may even have accumulated cash value on your reviewable policy that you can access when you replace it.

Should You Choose Whole of Life or Term Life Insurance?

Okay, so now you know that Reviewable Whole of Life is the evil twin and Guaranteed Whole of Life Insurance is the angelic one:

There are no reviews, and your premium won’t change.

The policy has no end date, and it can even be paid out tax-free to cover an inheritance tax bill.

Some whole-of-life plans policies even allow you to get 70 per cent of your premium back in cold, hard cash.

Guaranteed Whole of Life and Term Insurance both have their pros and cons.

The big negative of Term Insurance is that you might outlive your policy– if that’s the case, make sure you buy a policy with a conversion option.

worlds oldeest person

With a conversion option, you’ll be able to get a new quote based solely on your age.

The insurer can’t ask medical questions or increase your premium based on factors like your health, weight, blood pressure, or the sort of bad shit that creeps up on us all as we get older.

What is The Best Value Life Insurance Policy in Ireland?

And just to add to the mix, there is also a whole-life policy that you can structure to pay out more than you pay in.

This is for you if you’re looking for the “best value” life insurance.

How Much Cover Should You Buy?

When you’re buying insurance, you’ve two options for how your family will be “paid”:

  • A lump sum (to replace your potential earnings until retirement).
  • A monthly payment (not dissimilar to what your income would be).

So let’s say you earn the national average of €50,000 a year, and you have a two-year-old you want to protect until they are 25.

You might think, “sure, if I’m covering myself for 30 years, then I need well over a million.” (€50,000 x 20) = €1.5m

Nope.

That’s not quite how it works.

For one, if you have a mortgage, your Mortgage Protection will pay that off, so that’s one less cost.

You’ll also be out of the picture, so your ‘running costs’ disappear.

Therefore the amount of cover you need would be more like: (€50k x 23 years) x 66% = €759,000

By the way, no two people should have the same amount of cover, so don’t just copy what your sister bought or what your friend has or what Brian in Accounts feels is correct.

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How do Life Insurers Make Money?

Okay, so now you know the inner workings of Life Insurance, you might be wondering how it works out for the Fat Cats.

Life Insurance is a big business – and ultimately, the insurance company needs to make a profit.

How does that work if they continue to pay claims worth hundreds of millions of euros annually, like Aviva:

aviva life insurance claims 2023

Does the CEO keep your premium in a secret account while they stroke a fluffy white cat and giggle maniacally?

blofeld cat

Not quite.

Instead, they invest all the monthly premiums that they receive.

Not anything particularly risky, but also not in run-of-the-mill savings accounts.

That way, the insurance company can earn money on your money.

Over a lifetime, the premiums paid and the earnings from investments will cover the death benefit paid out (or even exceed it).

Life Insurance company wins again!

What Affects the Cost of Life Insurance?

Type of Life Insurance (whole-of-life premiums are 10-15 x higher than term life)

  1. Your Age
  2. Amount of Cover
  3. Term
  4. Smoker/Non
  5. Health issues
  6. Riders

Where Can You Get a Life Insurance Quote?

So you’ve read all the above, where do you go now to figure out how much this stuff actually costs?

As it so happens, you can click here to instant compare quotes from 5 insurers.

How to Start Protecting Your Family Today

How does Life Insurance work?

It doesn’t really matter.

What really matters is that you buy a policy that can protect your family from financial hardship should you die unexpectedly.

Make sure you have a suitable amount of cover in place.

You don’t want to leave your loved ones saying, “Is that all there is?” as they wonder why there aren’t more zeros on the life insurance cheque.

Want some guidance on putting the correct cover in place?

Complete this questionnaire, and we’ll get back to you.

Thanks for reading

Nick

Editor’s Note | We first published this blog in 2020 and have regularly updated it

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