Term life insurance - Lump sum cover if you die

This is the simplest and one of the cheapest forms of life insurance (compared to whole-of-life insurance). A term life policy gives your dependants 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 to your dependants, 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'; and 
• how long you want cover for, known as the 'term'.

These are both fixed for the life of the policy, as is the premium, or the amount you pay for the policy, unless you buy index-linked insurance.

Level of cover
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 serious illness or 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.

Policy restrictions
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; or
• your death is caused by suicide within the first year or two of the policy.

Extra benefits
You may be able to add extra benefits to a basic term policy for an extra cost. These benefits could include:

• serious illness cover;
• ‘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 up with inflation, which would, over time, reduce the value of any money paid to your dependants. And your premium goes up each year to pay for it. Many policies are index-linked automatically, so If you do not want your policy to be indexed, tell the insurance company when you are taking out the policy; or 
• a conversion option - this option lets you convert your policy into a new policy at the end of the term without having to prove your state of health. Usually, you have to be under 60 or 65 to convert your policy. It means you will be able to get life cover when you are older, in return for paying a higher premium now.

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