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All you need to know about life cover and protection policies

March 04, 2024

When it comes to life cover, the myriad of advertisements touting lowest cost life cover premiums and multi different types of cover can be overwhelming. While protection is often viewed as a necessary evil, the real question is: what factors should you consider when safeguarding your finances and the wellbeing of your loved ones?

Diverse protection policies, encompassing living and death benefits, cater to various scenarios. Some provide living benefits, others death benefits, some shield the bank while others protect you and your loved ones. Choosing the best protection tailored to your individual needs demands careful consideration.

When delving into any financial product, it is crucial to comprehend the coverage and assess its alignment with your evolving needs. Here, we unravel the intricacies of the various life and death benefits:

What are the different types of life cover?

Death Benefits:

A life cover policy is one that pays out in the event of death. The policy will either pay out a lump sum to a joint policy holder or to your estate on death.

There are three main forms.

  1. Decreasing Term Mortgage Protection 

What is Mortgage Protection life cover?

This is the cheapest form of life cover, where the sum assured is taken over a contracted term and decreases annually – typically at a rate of 6%. An example would be a mortgage protection policy of €300,000 over 30 years, where in year 15 the benefit that would be payable on death would be circa €213,000.

  1. Level Term Protection 

Under a level term contract the sum insured does not decrease throughout the term. In the example above the policy would pay out €300,000 on death, even in year 15.

Both of the above policies are popular when taking out a mortgage as they can be assigned to your mortgage lender. A mortgage protection policy is designed to clear the mortgage in the event of death, while the level term policy would clear the mortgage, with any surplus going to the joint policy holder or the deceased’s estate.

The basic level term mortgage protection policy is really there to protect the bank, whereas a level term policy has the additional protection of a lump sum for your loved ones.

  1. Whole of Life cover 

A standard life policy that does not pay out is a mixed blessing. It means you are still living at the end of the term of the contract but it also means that the premiums you have paid throughout the term are of no ultimate benefit to you.

A policy that provides a guaranteed payout on death is a Whole of Life policy which can be taken on a joint life or dual life basis if a couple.

Unlike mortgage protection or level term policies, which have a specific contract term after which you have no cover or payout, ‘whole of life’ cover is designed to pay out whenever you die, assuming premiums continue to be paid.

A very attractive policy in the market is a whole of life policy with the option to add a ‘life changes’ option. This allows you to adapt your policy if your life circumstances change with the option to stop paying premiums after a minimum of 15 years and still get something back. A unique product, it is available for an additional 10% of the standard premium.

The benefit is one of two options of your choosing. You can have a lower amount paid out when you die under a ‘protected cover’ option or you can take an immediate cashback amount, called ‘protected cashback’, and end the policy.

The reduced benefit under the ‘protected cover’ option is determined by a formula that takes the original cover amount and multiplies it by number of months the premium has been paid divided by total months that should have been paid under the policy start to contracted expiry.

The protected cashback is paid if, after 15 years, you stop paying premiums and the policy ends. You can then take immediate cashback of 70% of the premiums you have paid so far up to a maximum of 90% of the amount you would receive if you chose the protected cover option. After 15 years the longer you continue to pay premiums the higher the claim amount or cashback will be.

Moving beyond death benefits, living benefits play a pivotal role in comprehensive coverage:

What other insurances can protect me?

Living Benefits

  1. Income Protection

What is an income protection policy?

What if you could not earn an income due to illness or injury? Could you survive on €232 per week from the state and still pay your bills? Self-employed individuals are not even entitled to this state illness benefit so their income could go to zero overnight.

Your income pays for your basic needs and more, so insuring your income is the most important thing you can do.

Income Protection provides a replacement income if you are unable to work due to illness or injury. It protects you by providing a regular income, post any deferred period, for the complete duration of your illness until such time as you return to work or retire. The average duration of an income protection claim in Ireland is 5 years.

You can insure up to 75% of your income, meaning the maximum you can receive in total is three quarters of your income after the state benefit is taken into account, if you are eligible for this.

For self-employed people, who are not entitled to the state illness benefit, income protection is so important and premiums are a tax deductible business expense.

For PAYE workers you can claim tax relief on premiums at marginal rate.

  1. Specified Illness Cover

What does a specified illness policy cover?

Specified illness cover pays a lump sum benefit if you are diagnosed with a specified illness covered under your plan, alleviating the financial burdens during challenging times.

The lump sum can be used as you choose for treatment, income replacement or home modifications if required.

The cost of cover will depend on the level of cover chosen, your age, your health and options selected.

Living and death benefits are paramount and deserve thoughtful consideration. Seeking guidance from a qualified advisor is crucial in navigating the nuances of each type of insurance. They may appear as a luxury, but for those who have claimed under such policies during difficult times, these insurances become a lifeline.

How can doddl help?

At doddl we have specialist life and protection advisors who can work with you to understand your requirements at your stage of life and help you choose cover that protects you and your loved ones plus also is affordable.

I believe our real specialism is trying to align where your greatest risks and exposures are and helping explain the cover that is available in simple, easy to understand terms.

Our advisors are all normal people with household budgets they are trying to manage themselves. They understand that every policy has a premium and a cost and they look to seek out cover that best suits your requirements for the term you need it for and within budget.

We work with all life assurance providers in Ireland, for an immediate price matched quoted for your review please check out our site – Get a quote with doddl

For more tailored cover including income protection, specified illness or whole of life cover contract our team on [email protected] we can send you a diary link to discuss your requirements.

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