If you’re curious about navigating the world of life insurance in Ireland, you’re not alone. Term insurance, indexed policies, insurance versus assurance... it’s a lot to unravel, but it’s worth unravelling.  

Life insurance can mean many different things, but it’s effectively a way to help you protect your most important assets: your income, your future earnings, and your family. This should be the cornerstone of your financial plan – let's find out why it’s so important. 

What is life insurance? 

Let’s start with the basics and talk about what a life policy actually is.  

Life insurance is a name that covers several types of different protection policies, but what most people mean when they talk about life insurance is a policy that pays out when the policyholder dies. 

Life insurance in Ireland: how it works

If we’re talking about the most common type of life insurance, then this is how it works: 

• You (the policyholder) decide the value of a cash payment (the lump sum), with the amount being subject to approval by the provider. 
• You also decide the length (term) of cover: until a certain age, or for the rest of your life. 
• You pay towards the policy (usually monthly) for the duration of the term. 
• Typically, you will nominate a person or group of people to receive the lump sum (the beneficiary or beneficiaries). 
• Upon the death of the policyholder (within the term), the beneficiary receives the lump sum.  

It’s a little more complicated than that when you really dig into it (and there are a lot of different kinds of life insurance) but that’s the basic idea of a life insurance policy.  

Why do I need life insurance? 

In a word: protection. 

It’s not pleasant to think about, but any one of us could die suddenly. Thinking about life insurance isn’t about being morbid and dwelling on pessimistic scenarios, but simply about being prepared and giving yourself peace of mind.  

Having a life policy helps to ensure that your family won’t be left grappling with financial burdens during an already terrible time. Among other things, a life insurance lump sum can: 

• Cover outstanding bills, 
• Help to replace a lost income, 
• Contribute towards family savings goals, 
• Pay for funeral expenses, 
• Leave a nest egg for children. 

Life is uncertain and unpredictable, but a life policy is there to help your loved ones land on solid ground. 

What does life insurance pay? 

Talking to a financial advisor will be your best bet to decide how much your life policy lump sum should be, because there is no one-size-fits-all answer.  

For those with children, the standard recommendation is to replace your income after tax until your youngest child is 25. This means someone with a net income of €40,000 and three children aged 15, 13, and 10 would be recommended a lump sum of €600,000.  

However, even for this standard recommendation there are other considerations: the Widow’s Pension will supplement this income, and a Mortgage Protection policy may have been in place, reducing the family’s monthly outgoings and meaning they need less to replace a lost income. People without any children, or those with other kinds of dependents, will need different levels of cover still.  

What are the different types of life insurance? 

It can be a little bit confusing when you explore your life insurance options and find yourself confronted with a load of different names of coverage types and add-ons. Here are the most common kinds of life insurance policy that you’re likely to come across: 

Term Life Insurance 

One of the most common types of cover is known as Term Life Insurance. This will guarantee a lump sum payment to beneficiaries if the policyholder dies within a set period, known as the "term".  

For example, you might take out a 35-year policy on your 30th birthday. This means that if you die at any time on or before your 65th birthday, your beneficiary will receive a lump sum.  

If you live past this date, the policy has ended and your beneficiary will receive nothing upon your death. 

Mortgage Protection Insurance 

You will need Mortgage Protection Insurance if you buy a property. This is a type of insurance that helps to pay off your mortgage in the event of your death. The payment goes directly to your mortgage provider and will go towards paying off any remaining mortgage balance. 

Besides a few exceptional circumstances, you can’t draw down a mortgage without having this cover in place, so make sure you brush up on this cover to avoid a last-minute panic before you get your keys! 

Life Assurance (Whole of Life Insurance) 

A lot of people use Life Assurance and Life Insurance interchangeably. In many ways they are very similar, but generally Life Assurance is also known as Whole-of-Life Insurance, or Life-Long Insurance, whereas Life Insurance typically refers to Term Life Insurance (see above).  

Life insurance vs life assurance: the difference

In short, Life Assurance pays out whenever you die. Life insurance pays out if you die within a specified period (the term). That's why it's called life assurance - it pays for an event that is guaranteed to happen. 

Many people opt for term policies (life insurance), as in their old age they are less likely to have financial dependents and outstanding loans. However, Whole-of-Life insurance (life assurance) may be an option for the purposes of inheritance tax, or simply to leave money to your children. 

Indexed Life Insurance 

Indexed Life Insurance is a kind of life policy that increases in value over time, so that the purchasing power of the lump sum is not decreased.  

Because of inflation, the value of a fixed amount of money will be less over time. For example, €100,000 in 2013 would have the purchasing power of just €88,973.87 today*. You can imagine the impact of this effect over a 50-year life policy!  

An indexed policy increases the lump sum each year to counter this, although the monthly policy payments will also increase accordingly. 

Pension Life Insurance 

Pension Life Insurance is a type of life insurance that you can take out before you retire. It pays a lump sum if you die during the term plan, which covers you until your retirement. The main advantage of Pension Life Insurance cover is that it could cost you less. This is because you may be able to claim income tax relief on your payments. 

This type of life insurance is a good option for self-employed people, or those in employment but not part of a company pension scheme.  

Specified Illness Cover 

While life insurance generally pays out when you die, Specified Illness Cover will pay out a tax-free lump sum if you are diagnosed with one of the serious illnesses on your plan. You can often get this as an add-on to your life insurance policy. 

This lump sum could be used to pay towards bills, supplement lost income if you are too ill to work, or be put towards immediate and large expenses resulting from your illness – perhaps to refit your home or buy a wheelchair-friendly car.  

Income Protection 

Like Specified Illness Cover, Income Protection Insurance is a kind of life insurance that does not pay out when you die. Instead, it kicks in when you become unable to work due to illness or serious injury while employed.  

Instead of paying a lump sum, it will pay out a percentage of your income so that you and your family still have regular money coming in. This way, you can pay towards your housing, bills, and other everyday costs that won’t stop even if you’re unable to work.  

Bill Cover 

Bill Cover is a type of cover designed to pay for your rent or mortgage as well as essential utility bills if you are unable to work due to illness or injury while employed. It is similar to Income Protection, but rather than being designed to replace your income, it is designed specifically to pay towards essential bills. 

Bill Cover is available exclusively through OnePlan Protection from Irish Life Assurance. Note that if you become unemployed for more than one month you will be unable to claim, and any claim may be limited if you are living abroad at the time of the claim.

Death in service benefit 

Some employers will offer a death in service benefit, whereby your next-of-kin or a named beneficiary will receive a multiple of your annual salary if you die while you work for them.  

This isn’t just for the likes of skydiving instructors, firefighters, and bodyguards either. Many low-risk desk jobs have this benefit, and it applies to death in general, not just at work – you don’t need to keel over while you’re logging an IT service desk ticket. 

Choosing the best life insurance for you 

As you can see, there are a lot of different options when it comes to life policies.  

Not only that, but they aren’t mutually exclusive. You might want to have Income Protection and Specified Illness Cover as well as Term Life Insurance – and you’ll likely need Mortgage Protection if you buy a property.  

Speaking to a financial advisor is by far the best way to decide the cover you need to best support your family if the unexpected happens. You can book a free appointment with a qualified financial advisor; there’s no fee or obligation. 

So, should I have life insurance? 

Absolutely. Life insurance and other forms of protection are essentially a safety net for your loved ones and could help them financially after your death, illness, or injury. 

Remember, your biggest asset is not your home, car, or pension: it’s your income, and all the income you may earn in the future. Life insurance, illness cover, and income protection are all different ways of helping to protect it. 

Life Insurance in Ireland: FAQs 

Is life insurance expensive? 

Not necessarily. The cost of a life policy depends on your age, health, whether or not you smoke, and the type and length of coverage you want. There are affordable options for everyone, and a financial advisor can take you through your options to find a policy that suits you. 

Isn’t life insurance just for older people? 

Not at all. In fact, the younger you are when you get a life insurance policy, the more cost-effective it can be – though you will be paying towards the policy for longer, the premiums can often be cheaper. Not to mention that, at any age, Income Protection and Bill Cover could help you continue to pay your rent or mortgage if you can’t work due to illness or injury. 

A life policy isn’t about getting your affairs in order when you’re older; it’s about being proactive and helping to ensure that your loved ones are taken care of, no matter what stage of life you're in. 

Do single people need life insurance? 

Definitely – just because you don’t have a partner reliant on you doesn’t mean that life insurance can’t help your loved ones. You may not need as large a policy, but life cover can pay for funeral costs and other expenses that your family may incur.  

My job provides life insurance. Do I need my own life policy? 

Having a policy in place is a good place to be in but remember that this coverage won’t come with you if you change jobs.  

Getting a personal policy that isn’t tied to employment is still a good idea, especially as it may also be the case that your employer’s policy won’t pay out enough for your family. If you have your own protection in place, your employer’s policy is just a cherry on the cake. 

Do stay-at-home parents need life insurance? 

Yes. Life insurance is a valuable financial tool for anybody, whether or not they earn an income. The value of the contributions provided by a stay-at-home parent – caregiving, nurturing, housekeeping – is incredibly significant, and life insurance can help to cover the cost of replacing these necessities. 

Is term life insurance the best choice? 

It’s the most common choice, but whether it’s the best depends on your situation. Whole of Life Insurance or an indexed policy might make more sense for one individual as opposed to another, because no two people need the exact same policies. 

A financial advisor can guide you based on your personal circumstances, helping you not only to tailor your policy to provide the most benefit but also to guide you through the process of putting protection in place for your family. 

*Consumer Price Index – Inflation Calculator | retrieved 20 December, 2023