There are different ways life cover can be structured. The following are simplified examples of the different types of life cover.
Firstly, we must explain that a Mortgage Protection policy is an umbrella term that is used to cover any type of policy that is used to protect the loan on a Mortgage in the same way a “Car” is an Umbrella Term to cover Petrol, Diesel, Electric, Hybrid or Gas car.
Decreasing Term Assurance: The value of the life cover decreases over time to zero. This is ideal for a Capital and Interest loans where the loan is decreasing. In the example below if the person dies, the policy will pay out approx. €50,000 after 25 years. It is the cheapest of all the life covers because the life cover is getting smaller as you get older.
Guaranteed Level Term Assurance: The cover is level through the term of years selected. This can be from 1 year to 50 years. As the name suggests the cover is level throughout the term of years that has been selected. In this example if the person dies anytime within the 25 years, the policy will pay out €250,000.
Indexation option: This is where by you agree to a set increase each year. This is to keep ahead of inflation. The life cover increases but so too does the premium. These increases may not be of the same value. For example, Friends First increase the life cover by 3% and the monthly premium by 5%.
Conversion Option: You pay approximately an extra 5% to avail of this option. You have the option of converting the policy without answering any medical questions at the end of the original term.
Waiver of Premium Option: It ensures that the policy will continue to be in effect even if the policyholder experiences a loss of income. In short, the policy stays in effect even though the premiums are not being paid.
Whole of Life – 3 options
Whole of Life Continuation Option
This consists of two elements:
- Term Assurance that will cease at a specified term of your choosing.
- Whole of life cover that will continue until paid out.
Importantly – you must select a period and then pay for that period only. The Whole of Life cover continues even though you have stopped paying the premiums. This type of policy can be seen as a funeral savings policy as the money is guaranteed to be paid out when you die.
Whole of Life – Fixed Premium
This provides life cover for the whole of your life. The premium and life cover are fixed.
Whole of Life – Reviewable Premiums
This will provide you with life cover providing you can pay the increasing premiums. There is normally a 10 year review. 5 years thereafter and yearly at the age of 70. This is an older type of Whole of Life cover and we would not recommend this type of policy as this is very expensive compare to other types of Whole of Life above.
As you get older the cost of the life cover increases. This is because the chance of you dying increases each year. A feature of the Reviewable Whole of Life policy is that some of your premiums are invested. This allows the build-up of a “Reserve Funds”. The life cover gets more expensive as you get older. The company feeds off this reserve fund to pay for the life insurance premiums. This will continue until the reserve fund “Bottoms Out”. At the next review period the premium will increase to maintain the existing level of cover. There is no limit to this increase.
The Qifa Team would be happy to discuss any of our services with you. Contact Qifa today to discuss your requirements on 022 57444.