How to Arrange Life Cover as Your Needs Change

10-second summary: When your children are young, your financial risk is highest. As your mortgage reduces and your children become independent, that risk falls. Arranging life cover properly means deciding whether your protection should stay level for the full term or reduce in line with that changing risk.

When your children are small, your financial responsibilities are at their peak.

If something happened to you tomorrow, your partner might need income support for 15 or 20 years.

Mortgage payments.

Living costs.

Education.

And the rest.

That level of risk does not stay constant.

As your mortgage reduces and your children grow up, the financial risk naturally falls as well.

So arranging life cover is not just about choosing a number.

It’s about deciding whether that number should stay fixed or reduce over time.

Why Your Need for Life Cover Changes Over Time

When Your Children Are Young

• Your mortgage balance is high.
• Your children are financially dependent.
• Education and living costs are ahead of you.
• Your household may rely heavily on one income.

If you died during this period, the financial impact would be significant and long lasting.

Twenty Years Later

• Your mortgage is largely repaid.
• Your children are financially independent.
• You have built savings and pensions.
• Your overall financial exposure is lower.

The risk has reduced so the amount of life cover required has reduced as well.

Two Ways to Arrange Life Cover

Level Term Life Insurance

The lump sum stays the same for the full term.

If you arrange €500,000 over 25 years, it pays €500,000 whether you die in year 1 or year 24.

This suits situations where a fixed lump sum is required regardless of timing.

Decreasing Term Life Insurance

The amount of cover reduces gradually over the term.

This type of policy is commonly used for repayment mortgages because the mortgage balance reduces over time hence it is more commonly known as mortgage protection.

But it can also be used as personal life cover.

It does not have to be assigned to a bank.

Because the cover reduces, premiums are lower than level term for the same starting amount.

Using Decreasing Term as Family Protection

Most people are never told this can be structured deliberately.

If your main financial exposure is during the years when your children are young, it can make sense to arrange more cover at the beginning and allow it to reduce as your risk reduces.

For example, instead of arranging €500,000 level cover for 25 years, you might arrange €750,000 or €800,000 on a decreasing basis over the same term.

If you died in the early years, your family would receive the higher amount when they need it most. As the years pass and your financial responsibilities fall, the cover reduces in line with that reality.

This can also be combined with level cover where appropriate. The right structure depends on what you are protecting.

A Practical Example

Jack and Jill are both 35 and have one young child. They have a budget of €55 per month for life insurance over 25 years.

With that budget, they could arrange:

• €500,000 level term life insurance, or
• Approximately €800,000 decreasing term life insurance.

If Jack died in year 1, the decreasing policy would pay close to €800,000. If he died near the end of the term, it would pay significantly less.

The decision is not about which policy sounds better. It is about which structure matches their real financial risk.

When This Strategy Makes Sense

• You have young children with time-limited financial dependency.
• You expect your need for protection to reduce over time.
• You want to maximise early-year cover within a fixed budget.

When Level Term May Be Better

• You want to leave a fixed lump sum regardless of timing.
• You are planning for inheritance tax or estate equalisation.
• You need cover for business protection.
• Your financial exposure does not reduce over time.

There isn’t one “best” option. It depends on what you’re trying to protect.

Important Considerations Before You Arrange Cover

If you add serious illness cover to a decreasing policy, it is on an accelerated basis, meaning that benefit reduces in line with the life cover.

A lot of insurers now include a conversion option on reducing policies. That means you can switch it to level term later without filling out new medical forms, as long as you stay within the rules of the policy.

But if you don’t have that option, changing or increasing cover later usually means going through underwriting again. That can mean different pricing, or even restrictions, depending on your health at the time.

So the structure you choose at the start does matter.

It is much easier to get this right at the beginning than to try and fix it ten years down the line.

If you would prefer your family to receive a monthly income rather than a lump sum, that can be arranged too.

Read more about monthly income life insurance here.

Next Steps: Arranging Cover Properly

When we help someone arrange life cover, we look at:

• Your mortgage balance and term.
• The age of your children.
• Your household income.
• How long financial dependency is likely to last.
• Whether cover should stay level or reduce over time.
• Your health and any existing medical history.

If you would like a personalised recommendation, complete the questionnaire below and we will review your situation properly.

Or, if you would prefer a short call, you can schedule a time here:

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Thanks for reading

Nick

Editor’s Note: This guide was first published in 2017 and has been updated to reflect current insurer features, including conversion options now available on many reducing term policies.