How Does Life Insurance Work In Ireland in 2024
Many of us view life insurance as nothing more than a transaction—you give the insurer money, the insurers pay out money if you die.
But what if we saw it as more than just paperwork?
What is we saw it for what it really is – a protective bubble around your family finances, making sure the ones you love the most are secure regardless of what happens to you.
Looking at it in this way turns life insurance into something you want to buy for your family rather than something you feel obliged to purchase.
Introduction to Life Insurance in Ireland: What You Need to Know
Home Insurance protects your house.
Imagine trying to rebuild a house if you didn’t have insurance!
Car Insurance protects your car.
Your insurance policy will pay out should your car get damaged, so you can repair it without putting your hand in your pocket.
While Life Insurance doesn’t apply quite so literally, it’s even more important as it protects your loved ones if you die during the term of your policy.
Human life can’t be repaired (well not yet anyway…give it a few years!) – if you die, you stay dead, so life insurance is vital to look after your family.
Look, you know it’s important, and you’re pretty sure you need it, but you have questions.
How about we start with the big one: “How does Life Insurance work?”
The Basics: What is Life Insurance?
I hate to be the one to break it to you, but you are a walking pay cheque.
You work hard, get paid, and are able to financially provide your family with all they need:
pay the mortgage
keep the lights on
buy the groceries
take a holiday
All the normal things that make life bearable.
But if you exit stage left, so does your pay cheque.
How screwed would your family be without that income?
Very, I would imagine…and that’s why Life Insurance exists – to protect them financially.
You choose a suitable amount of cover so that when you die, the insurer can payout a tax-free lump sum to your family.
This magical thing called Life Insurance allows you to continue taking care of your loved ones even though you’re no longer here.
Where Can You Buy Life Insurance in Ireland
You have three choices.
Two are bad. 🙈
One is good. 🙏
Direct from the insurer (you don’t get a choice of insurers)
Bank (you don’t get a choice of insurers)
From a broker (you get the widest choice of insurers)
Types of Life Insurance Available in Ireland
Let’s compare the two main types, term life and whole of life
Term life insurance
Here, you’re insured for a set number of years.
So if you have a policy that covers you for 30 years, your family will receive a pay-out if you die in those 30 years.
When the 30 years are up, though, you no longer have coverage (unless you extend it).
Because coverage is limited by time, and you might outlive your policy, Term Life Insurance is the cheapest form of Life Insurance.
Of course, the idea of you outliving your policy has the insurers rubbing their hands with glee as it means they get to keep the money.
Whole of life insurance
Whole of life assurance doesn’t have an expiry date.
Instead, it covers you for your entire life (as long as you continue to pay the premiums).
Because of this guaranteed pay-out, the premiums are higher than Term Life Insurance.
Avoid Reviewable Whole of Life policies like the plague.
Although it has a savings element built in, as you get older the scoundrel insurer will review and increase your premiums to a level you can no longer afford.
You’ll end up cancelling the policy at some stage…and the insurer will pocket all those sweet sweet premiums.
If you have a Reviewable Whole of Life policy, you should consider replacing it with a Term or fixed price Whole of Life policy.
If you’re lucky enough to have a cash value built up, happy days, you can cash in your policy!
Should You Choose Whole of Life or Term Life Insurance?
Okay, so now you know that Reviewable Whole of Life is the evil twin and Guaranteed Whole of Life Insurance is the angelic one:
There are no reviews and your premium is fixed from the start of your policy.
There’s no end date to the policy and it can even be paid out tax-free to cover an inheritance tax bill.
Some policies give you the option to get 70 percent of your premium back in cold, hard cash.
Moral of the story: Guaranteed Whole of Life and Term Insurance both have benefits.
The big negative of Term Insurance is that you might outlive your policy– if that’s the case, make sure you buy a policy with a conversion option.
With a conversion option, you’ll be able to get a new quote based solely on your age.
The insurer can’t ask medical questions or increase your premium based on factors like your health, weight, blood pressure, or the sort of bad shit that creeps up on us all as we get older.
Everyone’s situation is different, so I can’t recommend whether you should go with Term Life (with a conversion option) or Guaranteed Whole of Life off-hand, but either are good shouts.
Use a Life Insurance calculator, consider the policies and see.
Alternatively, complete this questionnaire and I can sort it all out for you.
How Much Cover Should You Buy
When you’re buying insurance, you’ve two options for how your family will be “paid”:
A lump sum (to replace your potential earnings until retirement).
A monthly payment (not dissimilar to what your income would be).
So let’s say you earn the national average of €50,000 a year and you have a two year old that you want to protect until they are 25.
You might be thinking, “sure, if I’m covering myself for 30 years, then I need well over a million.”
Nope.
That’s not quite how it works.
For one, if you have a mortgage, your Mortgage Protection will pay that off so that’s one less cost.
You’ll also be out of the picture as well so your ‘running costs’ disappear.
The amount of cover you need would be more like: (€50k x 23 years) x 66% = €759,000
No two people should have the same amount of cover, so don’t just copy what your sister did or what your friend did or what Brian in Accounts did.
By the way, if you’re quoting for €250,000 over 25 years, you’re definitely doing it wrong!
GET HELP
How do Life Insurers Make Money?
Okay, so now you know the inner workings of Life Insurance, you might be wondering how it works out the Fat Cats.
Life Insurance is big business – and ultimately it is a business.
The insurance company needs to make a profit.
How does that work if they pay claims of €500,000 or €1 million, or more?
The CEO keeps your premium in a secret account, right, while they stroke a fluffy, white cat and giggle maniacally?
Not quite.
Intead, they invest all the monthly premium that they receive.
Not anything particularly risky, but also not in run-of-the-mill savings accounts.
That way, the insurance company can earn money on your money.
Over a lifetime, the money paid in premiums and the earnings from the investments will cover the death benefit paid out (or even exceed it).
Life Insurance company wins again!
What Affects the Cost of Life Insurance?
Type of Life Insurance (whole of life premiums are 10-15 x higher than term life)
Your Age
Amount of Cover
Term
Smoker/Non
Health issues
Riders
Where Can You Get a Life Insurance Quote?
So you’ve read all the above and it all makes sense?
Now where do you go now to figure out how much you might pay and what the insurers would offer?
As it so happens, you can click here to instant compare quotes from 5 insurers.
How to Start Protecting Your Family Today
How does Life Insurance work?
It doesn’t really matter.
What really matters is that you buy a policy that can protect your family from financial hardship should you die unexpectedly.
Make sure you have a suitable amount of cover in place.
You don’t want to leave your loved ones saying “is that all there is?” as they wonder why there aren’t more zeros on the life insurance cheque.
Want some guidance on putting the correct cover in place?
Complete this questionnaire and we’ll be right back to you.
Thanks for reading
Nick
Editor’s Note | We first published this blog in 2020 and have regularly updated it
