Families ‘downgrading’ life insurance policies

Financial hardship is leading Irish families to favour cheaper life insurance policies whose benefits decrease over time but experts warn they may not be suitable for everyone.

Insurance provider Acorn Life has said its advisers throughout the country have noticed a marked increase in the number of people enquiring about the lower cost protection option — a less comprehensive policy that is generally cheaper than a fixed level or indexed policy.

Traditionally life cover is either set at a fixed level or indexed to increase at a modest level for the duration of the plan. Decreasing term protection cover still pays out a lump sum in the event of death and while the premiums are fixed, the sum assured decreases steadily over the term of the policy.

This type of insurance was traditionally used for mortgage lending where the debt was reducing, but is increasingly being considered for income replacement by those suffering financially as it is generally the cheapest.

Keith Butler, head of sales with Acorn Life, said: “As the economic conditions hit a wider section of society, we have noted an increase in the number people looking for this lower cost option. When we assessed how we could provide a product that could still offer basic protection for those families under significant financial strain the answer was to use Decreasing Life cover as a basic income replacement tool.

“When we looked at the lifetime financial responsibilities of many families, we find that they generally decrease steadily from the birth of their children until their adult children are no longer financially dependent.

“However, we are only advising this option to families who meet certain criteria and we are quick to outline that this is not a one-size-fits-all situation.”

Mr Butler added: “Some of those who’ve considered this option keep the premium the same as the level cover, but opt for a higher level of cover in the initial years, so they have considerably more cover when the kids are younger and their financial liabilities are at the peak.”

He said it was essential that anyone considering this type of policy get the proper advice. “It’s imperative that you seek advice from a financial adviser to ensure that there will be enough to support your family and to settle any outstanding debts which you may have at the time of your death.”