Becoming a parent is the number one reason for getting life cover……
A RECENT survey of Irish financial brokers has revealed that for many of us becoming parents is the number one trigger to take out life insurance cover, writes Grainne McGuinness.
“Two out of five (41%) financial brokers said that having a baby is one of the primary drivers behind why people buy life insurance,” said Daragh Feely, Head of Sales at Royal London, who commissioned the survey. “Having a baby triggers protective instincts and it could be the first time in a person’s life when they have to consider the financial security of their future and the future of those they’ll be providing for.
“So it’s not surprising people take out life insurance when they start a family as it is most likely the first time they believe they have a real need to purchase it.”
But new parents and anyone else contemplating life cover for the first time can struggle to work out the right level and type of cover for their needs.
The first thing to work out is the amount of cover you need. If something happened to you in the morning, how much would your loved ones need to be financially as secure as with you around? Some financial advisers suggest having insurance to cover 5-10 years salary, others recommend as much as 15.
Assess your commitments when deciding. If you have little debt and few dependents the lower level may be plenty but if you have a bigger family or major debt a higher level of cover is needed.
Stay-at-home parents also need protection and shouldn’t undervalue the cover they require. They may not have a salary to be replaced, but the cost of replacing the childcare and home care they provide would be substantial.
The next decision is what type of cover you want — whole of life or term life insurance.
As the names suggest, term life insurance provides cover for the term of the policy as opposed to your whole life. Term live cover is less expensive and is usually the best option for families with young children.
It is at this time that there is a need for greatest cover, as the benefit will have to last until they are no longer dependent financially.
Families with adult children can then reassess their needs and may choose to increase health insurance or serious illness cover rather than maintaining the same level of life cover.
When it comes to finding a provider you can research yourself, go through your bank or deal with a broker.
Choosing an independent broker will allow you to compare policies to find the right one for you; just check that the broker you are meeting is not tied and can deal with all six providers in the market.
When applying you will be asked to complete an application form, called a ‘proposal’.
This asks you for details such as age, medical history, career, hobbies, drinking habits, and whether you are a smoker.
The insurance company will assess the cost of your cover based on these details and you must answer fully and truthfully.
In most cases, policies will not pay out if death is caused by a medical condition that you were aware of when you first applied but did not disclose.
Depending on age and current health you may have to undergo a medical examination.
An important item to consider when taking out a policy is a conversion cover option.
This extra allows you to convert your policy into a new one before the end of the term without having to prove that you are then in good health.
There is a cost to taking this option but it brings peace of mind that you will be able to get future cover even if your health were to deteriorate.
The premium for the new policy will be based on your age when you convert — which will usually have to be done before a certain age, 60 or 65. Insurers have differing conversion options so discuss it with your broker when taking out the policy.
Grainne McGuinness, The Irish Examiner, Tuesday 15th of November 2016