Term insurance
Term life Insurance-Life insurance for a specific term.
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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.
As a guide, many industry advisers would recommend a term insurance minimum of 5 times gross income. A term policy may be used as security for a mortgage.
A term insurance policy may be preferable to a mortgage protection policy in a number of situations including:
- Where there is little difference in the premiums
- Where there is no other life insurance in place
- When it is likely that you will trade up within a forseeable time scale
We will of course go through the various alternatives with you and explain the advantages and disadvantages of the various policies .
Before you take out term insurance you must decide:
- the amount of cover you want paid out on your death
- how long you want cover for.
The standard premium usually covers terminal illness as well as death but check with your provider. This means that the policy will pay out a proportion, usually around 80%, of the policy benefit if you are diagnosed with a terminal illness (this is not the same as critical illness cover). The remaining benefit is then paid out once someone can give proof of death.
An advantage of this is that getting most of the benefit in advance could help pay for any medical costs you have.
Generally, term policies will not pay out if:
- your death is caused by a medical condition that you had when you first applied for cover but you did not disclose it
- your death is caused by suicide within the first year or two of the policy.
You may be able to add extra benefits to a basic term policy for an extra cost. These benefits could include:
- Conversion option - this option lets you convert your policy into a new policy at the end of the term and you don't need to prove your state of health at that time. Usually, you have to be under 60 or 65 to get this option. It means you will be able to get life cover when you are older, in return for paying a higher premium now.
- An indexation option also known as 'index-linking', this means the amount you are covered for increases in line with inflation each year. Typically, your cover rises by between 3% and 5% to keep pace with inflation, which would, over time, reduce the value of any money paid out.
- Serious/critical illness cover
If you choose indexation the premium also goes up each year, to pay for indexation. You should check how much your premium and your benefit increase by each year. Some insurers will increase your premium by 7% each year, for example, to pay for a 5% increase in your benefit. Many policies are index-linked automatically, so your premium would go up each year even though you did not choose that option. If you do not want your policy to be indexed, you will have to write to the insurance company to tell them so.
Further information on life insurance in Ireland is available on .lifeinsurance.ie website