Types of Life Assurance
Insuring you against some of life’s risks.

By: Joe Daly,
Daly Investment Planning Ltd,
Ballinrobe,
Co Mayo. (094 952-0921 or e-mail: info@dip.ie )

Protection policies. What are these and what are the benefits?
This broad term covers a multitude of alternatives – term assurance, critical illness, key man, income replacement and mortgage payment protection etc.

We all understand insurance? Or do we? When it comes to insuring our car or home contents this statement is probably true. But insuring against the risk of falling ill or losing your job is much more complicated.

How do you make sure that you have the right cover for your needs?
First, you may need to consider what it is you want to protect yourself against or your lender may want cover for a loan. Young healthy people may not feel the need to have serious illness cover or life cover. Some may be afraid of becoming unemployed, or not having an income if they are out sick.

Second, by knowing what benefits you are entitled to from your employer you can avoid taking out unnecessary policies and ensuring that those that are taken out to fulfil your needs. Some company schemes have a death in service benefit, which pays out benefits to your named beneficiaries such as your wife and children on dying while employed.

Remember that some insurance products include an investment element. If you want to invest, you need an investment vehicle. If you want insurance, buy an insurance policy. In doing this you can see where your funds are going to.

Remember that the proceeds of the policy if not held for security can be used as you so wish and ensure that you have drawn up a proper will.


Term Assurance
Level Term Assurance is the most basic type of life assurance. Each month you pay a fixed monthly premium in return for a fixed life cover amount (also known as the sum assured) over a fixed term. The life cover amount is paid out if death occurs before the end of the policy term. It has no value when the term ends or if it is stopped early.

Decreasing term assurance (mortgage protection) is often used for loans and works on a reducing balance of cover over the term of the policy. It is quoted using

Life cover is most relevant to people who have liabilities (such as a mortgage/loans) or dependants they want to protect when they die.

"Whole of Life" assurance
Term Assurance and Family Income Benefit only pay their benefits if you die during the specified term. Whole of Life Assurance always pays the life cover amount - on death, whenever it occurs. This is especially suited for inheritance tax planning.

Critical illness cover
This type of policy can be combined with life cover or set up on its own. Critical illness provides a lump sum if you are diagnosed as having a condition named in the policy. Some companies cover more illnesses than others and you should check this out when purchasing the policy.

Most insurance companies allow you to take out a critical illness policy if you are healthy and within their age range – normally 18 –60.

Another difficulty is that you may not be able to take out a policy if you have suffered from a serious illness already. It has often been said that we die from illnesses more than from old age.

Inflation Proofing/Indexation
Your life cover amount is increased in line with inflation, making sure that the value of your cover is not eroded by the increasing cost of living.

How much life cover do you need?
You should take all your assets into consideration when deciding the level of cover you need. A good rule of thumb figure is 15 to 20 times your income. If you invested €100,000 on deposit at present you may be lucky to get 3% gross or c. €3,000 per annum. Would this provide for your family needs?

Mortgage Payment Protection
Mortgage payment protection insurance will cover your home loan by paying your monthly mortgage payments for up to a year if you are unable to work. It generally covers accident, sickness and redundancy but each policy should be read through to ensure you understand what is and is not covered. This payment might be deferred a month or so after an accident, though this can vary considerably between policies.

If you are in an insecure job or both of you work in the one company / industry it could be looked at as an option. This may not be needed if you have sufficient savings. The costs involved in maintaining a policy like this are up to each individual and you should weigh up your financial situations should you become unemployed.

Permanent Health Insurance
Permanent Health or Income Replacement policies are designed to provide you with a replacement income in the event of long-term sickness or disablement.

Payments are usually made when you cannot undertake your own job due to illness or injury. Policies vary considerably but, if you make a claim, the payments are normally made each month/week and may pay up to two-thirds of your salary.

There will also be allowances made for state benefits if you are out sick for a prolonged period. You can link your cover to the Consumer Price Index and decide on a deferral period of say 13 or 26 weeks before payment begins.

The length of deferral will effect your contribution as will your occupation. Also the older you are the more it will cost. It does not cover you against being made unemployed.

Family – income benefit
A less well-known variant is family-income benefit, which provides the option of a monthly income, rather than a lump sum, for the deceased’s family. This can be suitable for young parents with children, or those who would prefer not to have to worry about how to invest a lump-sum payout.

Hibernian Health/VHI/Quinn
Private medical insurance

Private medical insurance is aimed at people who want to pay for private treatment, rather than replace income. Unlike critical illness cover, which provides a lump sum, private medical insurance often pays the costs of operations.

Again it is important to read what you are covered for and also the fact that you have an illness before joining can affect the policy.

The above is for information purposes only and terms and conditions apply to each type of policy