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Home Insurance protects your house. 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. Imagine trying to rebuild a house if you didnât have insurance!
How healthy are your savings?
While Life Insurance doesnât apply quite so literally, itâs even more important as it protects your loved ones if you die during the term of your policy.
Human life canât be repaired (well not yet anywayâŠgive it a few years!) â if you die, you stay dead, so life insurance is vital to look after your family if you die.
Look, you know itâs important, and youâre pretty sure you need it, but you have questions. How about we start with the big one: âHow does Life Insurance work?â
I hate to be the one to break it to you, but you are a walking pay cheque. You work hard, get paid, provide your family with all they need.
If you die, the pay cheque dies too. How screwed would your family be without that income?
Very I would imagine…and thatâs why Life Insurance exists – to protect them financially. You choose a suitable amount of cover to replace your income and you pay your premiums. When you die, the insurer pays this tax-free lump sum to your family.
The magical thing about Life Insurance is that it allows you to continue taking care of your loved ones even though youâre no longer here.
Here, youâre insured for a set number of years. So if you have a policy that covers you for 30 years, as long as you keep paying your premiums, your family will receive a pay-out if you die in those 30 years.
When the 30 years are up, though, 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.
This doesnât have an expiry date. Instead, it covers you for your entire life (as long as you continue to pay the premiums). Because of this guaranteed pay-out, the premiums are higher than Term Life Insurance.
Avoid Reviewable Whole of Life policies like the plague. Although it has a savings element built in, as you get older the scoundrel insurer will review and increase your premiums to a level you can no longer afford. Youâll end up cancelling the policy at some stage…and the insurer will pocket all those sweet 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. If youâre lucky enough to have a cash value built up, happy days, you get to trouser it.
Okay, so now you know that Reviewable Whole of Life is evil BUT Guaranteed Whole of Life Insurance is pure.
There are no reviews and your premium is fixed from the start of your policy. Thereâs no end date to the policy and it can be paid out tax-free to cover any dreaded inheritance tax bill.
Some policies even give you the option to get 70 percent of your premium back in cold, hard cash.
Moral of the story: Guaranteed Whole of Life and Term Insurance both have benefits. The big negative of Term Insurance is that you might outlive your policyâ if thatâs the case, make sure you buy a policy with a conversion option.
With a conversion option, youâll be able to get a new quote based solely on your age. The insurer canât 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.
Everyoneâs situation is different, so I canât recommend whether you should go with Term Life (with a conversion option) or Guaranteed Whole of Life off-hand, but either are good shouts.
Use a Life Insurance calculator, consider the policies and see. Alternatively, complete this questionnaire and I can sort it all out for you.
When youâre buying insurance, youâve two options for how your family will be âpaidâ:
So letâs say you earn the national average of âŹ45,000 a year. You might be thinking, âsure, if Iâm covering myself for 30 years, then I need over a million.â
Nope.
Thatâs not quite how it works. For one, if you have a mortgage, your Mortgage Protection will pay that off so thatâs one less cost. Youâll also be out of the picture as well so your ârunning costsâ disappear.
Thatâs a rough guide but itâll give you an idea as to how much cover youâd need. No two people should have the same amount of cover, so donât just copy what your sister did or what your friend did or what Brian in Accounts did. (If youâre quoting for âŹ250,000 over 25 years, youâre definitely doing it wrong!)
Okay, so now you know the inner workings of Life Insurance, you might be wondering how it works for the Fat Cat in the glass building. Life Insurance is big business â and ultimately it is a business.
The insurance company needs to make a profit. How does that work if they pay claims of âŹ500,000 or âŹ1 million, or more?
Insurance companies keep your premium in an account, right, while they sit and pet a fluffy, white cat and giggle maniacally?
Not quite.
Often, the money paid in premiums is invested. 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 money paid in premiums and the earnings from the investments will cover the death benefit paid out (or even exceed it). Life Insurance company wins again!
So youâve read all the above and it all makes sense. It sounds reasonable even â so where do you go now to figure out how much you might pay and what the insurers would offer?
As it so happens, you can click here to go to our Life Insurance calculator, which will compare all five insurers and do the maths for you.
How does Life Insurance work? It doesnât 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 donât want to leave your loved ones saying âis that all there is?â 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 weâll be right back to you.
As Ireland's leading life insurance broker, we specialise in comparing the rates and policies from the top five Irish life insurance providers and offering the very best value quotes to suit the individual needs of our clients. Our expertise lies in finding a suitable insurance plan for those with specific needs, be it a particular illness, occupation or claim history, we've got you covered in every sense!
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