Term life insurance
Life insurance pays money to your dependants (people who rely on you for financial support) if you die.
Term life insurance 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.
- Do you need life insurance?
- How much life cover do you need
- Before you take out term insurance
- Who should you insure?
- Who gets the benefits from life insurance?
- How much does term life insurance cost?
- Level of cover
- Policy restrictions
- Extra benefits
- What happens if you stop paying premiums?
Do you need life insurance?
You may need life insurance if:
- Your family or others rely on you for financial or other support – for example if you work in the home or in a family business, your family would have to pay someone to do the work you currently do
- You have any loans or debts, such as a mortgage on the family home
- You act as a guarantor on a mortgage for someone
You may not need life insurance, or you may need less cover if:
- No-one depends on your income or work
- You have death-in-service benefits through your job or pension plan
- You have enough money for your dependants to live on if you died
- Your dependants would able to live on any social welfare benefits they would get if you died
- You have investments or property that could provide an income or be sold
- You are older and your family is grown up and financially independent
- Your partner is earning enough money to live on
How much life cover do you need?
If you have a young family, you will need more life cover than if your children are older, because the money will have to last longer. You need to consider buying enough insurance to:
- Give your family an income for as long as they need it
- Pay off your mortgage (you may already have mortgage protection insurance for this) and any other loans
- Cover bigger costs that might arise in the future, such as college expenses for your children
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'.If you have a young family, you may want to put life insurance in place until your youngest child has left school or college. This could mean having a policy with a 20 or 25 year term. You could also get insurance for a five or 10 year term, if your family is older. If you want cover that will pay out no matter when you die, you will need whole of life insurance.
The amount of cover and the term 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.
Who should you insure?
If you are in a relationship and have dependant children, you might want to consider a joint life policy. This covers two people on the same policy and could pay out a lump-sum if either of you die (a joint life policy) or if both of you die (a dual life policy). A joint life policy ends when the first person dies. A dual life policy continues until the second person dies.
Who gets the benefits from life insurance?
If you arrange a policy on your own life, the benefit is paid directly to your estate, or to whoever you have named as the beneficiary, once the insurer has received proof of your death. If your spouse or partner takes out a policy on your life, the benefit could be paid to them without going to your estate.
If you have a joint life policy the benefit is usually paid to the surviving policyholder named on the policy.
How much does term life insurance cost?
Check out our life insurance cost comparison to get more information on costs.
Will your life insurance benefit be taxed?
Life insurance benefit is paid out as a tax-free lump sum. However, anyone who inherits the money after your death, depending on their relationship to you, may have to pay tax. It depends on how much they inherit and Revenue rules at the time of your death.
You can buy a specific type of life insurance policy, called a Section 60 policy, to provide a tax-free lump sum to cover any inheritance tax liabilities that your beneficiaries may have when you die.
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 when you die.
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. If you add this cover to your life policy, it means you could make a claim during the term of the policy if you were diagnosed with one of the serious illness covered. The illnesses typically covered are usually very serious, such as cancer, a heart attack or stroke. Read more about adding serious illness cover to your life insurance.
- ‘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
- 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.
There may be other policy benefits available in addition to those listed above. Always read the policy terms and conditions and ask how much extra you will pay for extra benefits.
What happens if you stop paying premiums?
If you stop paying premiums into your term life policy, it will automatically lapse after 30 days. Once a policy has lapsed, you are no longer covered. Some companies will let you re-start the policy if it has lapsed for only a short time, once you are prepared to pay all the premiums you missed and sign a declaration saying you are in good health.
However, if your policy has lapsed for more than a few months, you may not be able to restart it and you may need to apply for insurance again. As you would be older than when you first applied, the premium may be higher and you may need to provide new evidence of your state of health.