Life Assurance is intended to protect your family in the event of your death within a specified time period, providing them with a lump sum.
People for whom Term Life Assurance may be suitable
- Those with family who depend on them financially
- Those who play a valuable economic role by minding the household
- Those with debts that will need to be met in the event of their death
People for whom Term Life Assurance is not suitable:
- Those who need for their mortgages to be covered in the event of their death but wish to pay the minimum possible should look at Mortgage Protection instead
- Those who have long-term illnesses, or a history of family illness, may find it difficult to obtain Life Assurance on reasonable terms
- Those who know they are terminally ill are highly unlikely to be able to obtain Life Assurance
Decisions to be made when buying Term Life Assurance
When buying term life assurance you should consider the following questions:
- Do you want cover just for yourself or for your spouse as well?
- How much cover do you need?
- Do you want cover to increase over time to guard against the effects of inflation?
- Do you wish to add on cover of other types – for example specified illness cover, such that the policy will pay out as soon as you contract a specified serious condition rather than waiting on your death?
It may be that both you and your spouse earn incomes that keep your family going. Even where this is not the case, your spouse may play a valuable role in keeping the household running from home.
Joint cover will guard against something happening to either of you, but it will cost more than single life cover if you want it to pay out on the death of either of you. Alternatively it may make more sense to buy separate insurance policies for each of yourself and your spouse.
Providing the right level of cover
You should try to provide yourself with the right level of cover: over-insuring could be a drain on your income. As a very crude rule of thumb, it is often recommended that you should aim to provide your dependants with ten years worth of after-tax salary in the event of your death. You may wish to adjust this downwards to take account of:
- Any family savings you may have amassed
- Any death-in-service benefit that may be provided by your employer or pension scheme
- Any other cover you may have in place – for example, mortgage protection cover
Guarding against inflation
Someone who took out life cover based on ten times their salary twenty years ago may now be under-insured: wages and inflation have risen in the meantime.
To guard against the effects of inflation you can provide for indexation on your policy. This is likely to mean that your premium rises over time.
The Cost of Term Life Assurance
The cost of term assurance can vary depending on the following factors among others:
- Your age – the younger you are, the lower the cost
- Your lifestyle – a healthy lifestyle will reduce the cost
- The amount of cover you require
- The period that you require cover for
- Whether you choose to add on additional cover to basic life assurance – for example, specified illness cover or a provision for cover to increase with inflation
- The level of competition in the life assurance market
Of these, age is one of the biggest differentiators. The following provide possible costs of €200,000 of Level Term Assurance for a non-smoking man and his wife based on different ages:
- Age 25 - €11 per month
- Age 35 - €17 per month
- Age 45 - €39 per month
- Age 55 - €101 per month
Please note that these figures are merely indicative – the cost of cover for you will depend on your own choices and circumstances.
All other things being equal, you should always look to get the lowest premium available for the level of cover that you require. Mercer can help you to obtain this.
Answering questions on your health
Typically a life insurer will need to ask a number of questions relating to your state of health. Broadly, the healthier, younger and fitter you are, the less life assurance will cost.
You should always answer these questions truthfully to the best of your ability. For example, a smoker can easily reduce his life assurance premiums by saying he is a non-smoker. However this renders cover pointless: in the event of death, the life insurer is highly likely to investigate the health records of the insured and will refuse to pay out if the form has not been truthfully completed.
Life insurance for those with poor health
If you are trying to buy life insurance and are in a poor state of health, one of two things is likely to happen. First, an insurer may agree to cover you, but may increase the level of premium that you have to pay. Second, you may be refused cover.
Mercer can help
If you wish to take out Term Life Assurance, Mercer can help to provide you with the most competitive cover available to meet your specified needs.