Protection
Life Protection
Term Life Insurance:
This is the simplest and one of the cheapest forms of life insurance. A term life policy gives you a lump sum if you die during the term of the policy.
For example, you might take out a policy on your own life for €100,000 over 10 years. This means if you die within 10 years, the policy pays out €100,000 once someone can give proof of your death. If you don’t die within the term of the policy, no benefit is paid out and the policy ends.
Before you take out term insurance you must decide:
> the amount of cover you want paid out on your death, known as the sum assured or ‘policy benefit’
> how long you want cover for, known as the ‘term’.
These are both then fixed for the life of the policy, as is the premium, or the amount you pay for the policy.
Whole Life Policy:
Some insurers offer life policies that insure you for your whole life, or for as long as you want to keep paying premiums. The premium on these policies is higher than with basic term insurance and can increase at regular intervals.
You can decide to pay premiums up to your death or for a specified time, for instance until you are 65. In most cases your insurer will review your premiums and increase them every so often, commonly every 10 years.
Your premiums could increase significantly following this review and you may not be able to afford it. If this happens, you may have to accept a reduction in policy benefits. It’s important to consider this before your decide on this type of policy.
There are various types of whole-of-life policies, but the most common is a unit-linked whole-of-life policy. With this type of policy, the life assurance company invests your premium in a fund.
They manage the fund so that it is expected to grow at a certain rate and to increase in value over time. The fund value is not guaranteed. It may grow by enough to pay for your life insurance throughout your life. Or, in some cases, it may fall short of the amount that is needed to pay for your life insurance. In that case, you may have to pay a higher premium to keep the sum assured at the agreed level.
You can also get a policy where your premium is fixed and your benefit is set at an agreed level. You will generally pay much more throughout the period of cover for this type of fixed-premium whole-of-life policy than for one where the premium is not fixed.
It is important to realise that a whole-of-life policy has ongoing charges, such as yearly charges for managing the investment fund and sometimes monthly charges for handling your premium. These charges have the effect of reducing the value of the policy fund so the amount of any benefit paid out on your death is not guaranteed.
Mortgage Protection
During the average person’s lifetime their biggest outstanding loan will be their mortgage and therefore this debt is the most important to protect.
The aim of a Mortgage Protection policy is to pay off a mortgage if the Life Assured dies during the term of the plan.
This protection runs side by side with your mortgage, and decreases in value over time accordingly. In the event of your death, the life insurance company will pay off the remainder owed on the mortgage.
Serious Illness Protection
Serious illness insurance pays out a tax-free lump sum if you are diagnosed with one of the specific illnesses or disabilities that your policy covers. It is also sometimes called ‘critical illness cover’. It is often sold as an extra benefit on a life insurance or mortgage protection policy.
You may want to consider serious illness insurance if:
> you have no other cover for ill health
> you are not in paid employment, so cannot buy income protection insurance
> you have a mortgage, personal loans or other debts that you would still have to pay even if you became seriously ill and possibly unable to earn an income.
It is important to realise, when you consider this type of cover, that it would not replace your income if you were out of work because of a long-term illness. This is because some illnesses may be serious enough to prevent you from working full-time but are not covered by serious illness policies. Even where the illness is covered, the policy pays a once-off lump sum and not an ongoing income.
You can claim the benefit on your policy only if:
> the illness you develop is one of the illnesses your policy covers at the time of your claim
> a medical diagnosis confirms that your illness matches the definition of that illness outlined by the insurance company in your policy terms and conditions
> you survive for a period after you are diagnosed. This period may be seven or fourteen days, depending on the policy.
You must meet all three conditions to claim your policy benefit.
There are many situations where you may not be covered by your serious illness policy. You will not usually be covered if:
> your illness was judged to be caused by drug or alcohol abuse, a self-inflicted injury or your failure to follow medical advice
> your illness existed before you applied for insurance and you failed to say this in your application
> your illness arose because you were involved in dangerous or criminal activities
> you live outside the ‘territorial limits’ of the policy for a certain number of months of the year. The territorial limits may vary from policy to policy but would usually mean all EU countries.
Income Protection
An income protection policy pays out a regular cash payment that replaces part of your lost income if you have a long-term illness or disability and you can’t work. It is also sometimes called ‘permanent health insurance’.
Income protection plans do pay out a cash benefit, but only if you are not able to work because of your illness. The cash is paid out as an ongoing taxable regular income for as long as you are not able to work because of the illness. You must be in full-time paid work or be self-employed to get and continue to have income protection cover.
You may need income protection if:
> you are self-employed
> you have little or no sick pay from your employer
> you have no ill-health pension protection.
If you have an individual policy, you can set the amount you want to be insured for, when you take out the policy. The policy terms and conditions will tell you the maximum amount you can claim. It is usually 75% of your earnings before you became ill or disabled, less any other income you get while out of work, such as sick pay.
Usually your benefit payment stops as soon as one of the following happens:
> you return to work
> you reach age 55, 60 or 65, depending on the policy
> the insurer’s medical officer, who may check your medical condition from time to time, decides that you are fit to return to work
> you die.
I have known and worked with Frances all of my professional life and have consistently found her professional, helpful and extremely efficient. Her attention to client’s files is unfaultered. I am always delighted to deal with clients who have engaged Frances as their broker as it ensures that the file will be dealt with expeditiously and efficiently. Frances and her staff have proved to be an invaluable asset to me in my daily work. In addition her open and friendly personality means that she is always a pleasure to deal with.”
Claire McCarthy
Solicitor
Binchy Solicitors