Life Assurance a Beginners Guide

Life Assurance is the type of thing that few of us think about until its probably too late, indeed its the type of thing that we actually never want to need, but the inevitable will happen one day and its better to be adequately prepared.

There are numerous types of policies and each serve their own particular purpose, its best to speak to your financial advisor to have a full review done, he/she will let you know whats the right level and type of cover for you and your situation.

Perhaps its obvious to say but Life Assurance is sold by Life companies, eg Aviva, Canada Life, Friends First etc. In return for a premium, they will promise to pay out a sum of money if an insured event happens. This usually means death, but critical illness is also an optional cover to have.

I will give some information on the main types of Life Assurance. The first type is decreasing term cover.

Decreasing Term Life Assurance

This is the most common form of life assurance in the Irish Market and is usually taken out in connection to a mortgage. It promises to clear your mortgage in the event of death. The level of cover will reduce year by year in line with what is outstanding on your mortgage (apart from a few exceptions, everyone who takes out a residential mortgage is legally obliged to have at least enough life cover to clear the loan in the event of death).

This is the cheapest form of life cover as the risk to the life company is decreasing annually. The premium for this type of policy remains the same for the term of your policy.

This policy will usually be 'assigned' to your bank as security against you mortgage, ie the bank will use the proceeds of the policy to clear your mortgage. Any amount over and above what it takes to clear the mortgage will be refunded to your estate or to the surviving party on the policy should there be two people covered.

If you have cleared your mortgage, it does not make your policy invalid or useless in anyway. As far as your life assurance company is concerned they don't care if you have a mortgage or not, you are paying them to provide you cover, and they will continue to do so weather you have a mortgage or not.

These policies work well with mortgages as the cover decreases and is the cheapest way to cover your obligation to have life assurance. If you are looking for cover to provide for your family if you were to pass away, this would not generally be the type of policy to choose, as it decreases annually, this will of course provide less and less benefit over the years. In my next posts i shall go through other forms of cover and various options and terms common to life assurance.

Again if there is something you want me to cover in more detail, please let me know.

FS