The Vital Role of Life Insurance in Your Estate Planning

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Although discussing your own mortality can be uncomfortable, making the effort is essential to ensure the well-being of your family.

Life insurance can play a pivotal role in estate planning, ensuring your beneficiaries have financial support after your passing. This strategic planning revolves around the future security of your family and assets when you are no longer there to provide for them. 

If your loved ones—whether children, a spouse, or anyone else—rely on your income, establishing this safety net is crucial. 

But how exactly can you secure your family’s financial future along with the legacy of your business and assets? 

By arming yourself with comprehensive information, you can make well-informed decisions, giving you peace of mind that both your loved ones and your assets are well-protected.

Why Is It Important to Include Life Insurance in Your Estate Planning?

Life insurance provides financial protection for your loved ones, ensuring they have the resources to maintain their standard of living in the event of your untimely passing. 

By integrating life insurance into your estate plan, you secure immediate financial support for your beneficiaries, covering everything from daily living expenses to significant future costs like education and retirement

Additionally, life insurance payouts are typically exempt from income tax, offering a tax-efficient way to transfer wealth to your dependents. 

Thus, using life insurance in estate planning not only protects your family’s financial future but also maximises the legacy you leave behind.

How Does Life Insurance Work?

Life insurance is a financial contract between you and an insurance company, where the insurer agrees to pay a specified sum of money to your beneficiaries in return for the premiums you pay.

This arrangement helps provide financial security to your beneficiaries, compensating the loss of income and covering expenses incurred by your premature death.

Types of Life Insurance

Mortgage Protection: This insurance is designed to pay off your mortgage if you die, ensuring your family can remain in their home without financial burden.

Term Life Insurance: Offers cover for a specified period, ideal if you need protection to cover your most financially vulnerable years, such as while raising young children.

Whole of Life Insurance: Unlike term insurance, this provides lifelong cover and can also be a tool for estate planning as it includes a payout no matter when you pass away.

Section 72: This is a life insurance policy specifically designed to cover inheritance tax liabilities upon the policyholder’s death. 

This strategic use of life insurance prevents the need to liquidate other estate assets to pay taxes, helping to preserve the full value of the estate for your dependents.

Learn more by reading our guide on how to protect your children from inheritance tax on assets.

Get a Life Insurance Quote

How Can Life Insurance Provide For Your Family’s Future?

Life insurance can cover a range of expenses, providing financial support in various areas. Here are some key expenses that life insurance policies often cover:

Funeral and Final Expenses 

The costs associated with funerals and final arrangements can be significant. 

Depending on the insurer, Life insurance can cover funeral expenses of up to €10,000, relieving your family from the financial stress of arranging a funeral during a difficult time.

Read more about the terms and conditions explained by Royal London.

Debt Repayment

Life insurance can be used to pay off debts, including mortgages, car loans, and credit cards, ensuring that these financial burdens do not fall on your family after your passing. This is particularly important in safeguarding your family’s financial stability.

Income Replacement

For those who were primary earners, life insurance can provide ongoing income to families to help maintain their standard of living after the loss of an income source.

Day-to-Day Living Expenses

Provides for your family’s everyday needs, from groceries to utility bills, ensuring minimal disruption to their lifestyle.

Education Expenses

Life insurance can also be used to ensure that funding for children’s education is secure, covering tuition fees for school or college.

Help Children with Buying Their Property

Life insurance can provide financial assistance to help children purchase their own homes, contributing to their long-term financial stability.

Pay Off Mortgage

The life insurance payout can be used to pay off the remaining balance on a mortgage, helping to ensure housing stability for the beneficiaries.

Even if you have a mortgage protection policy specifically designed to cover your mortgage, it’s important to recognise the differences between this and a life insurance policy

Mortgage protection is intended to pay off your home loan in the event of your death, ensuring your property isn’t a financial burden to your family. 

However, life insurance provides broader coverage, offering financial support for various needs such as daily living expenses, children’s education, and other future investments

Despite the common misconception that mortgage protection eliminates the need for life insurance, we strongly recommend having both to fully secure your family’s financial future.

This way, mortgage protection takes care of the mortgage while life insurance addresses other financial responsibilities and future plans.

How to Determine If Your Life Insurance Cover Is Sufficient

To determine if your insurance cover is sufficient, consider the following steps:

Assessing Your Needs

Calculate the total amount of your current debts, ongoing expenses, and future financial obligations (like children’s education or retirement). This helps establish a baseline for how much cover you might need. 

You can also use a Life Insurance Calculator to determine how much life insurance cover you need. 

Review Current and Future Income Needs

Estimate your family’s income requirements in your absence, taking into account both immediate needs and long-term expenses. This ensures your insurance can support your family’s standard of living.

Consider Inflation

Consider how inflation could affect future costs and anticipate possible changes in your family’s circumstances that might increase financial needs.

When securing a life insurance policy, you have the option to select the Indexation Option. This feature is specifically designed to adjust your policy’s value in line with inflation, ensuring that your cover continues to be sufficient over time as costs increase.

When you opt for indexation, the cover amount increases annually, but this also means an increase in your premium. 

Although adding indexation to your life insurance policy involves additional costs, it can be a prudent choice to protect the policy’s value from being eroded by inflation, ensuring that it continues to meet future financial needs adequately.

Consult with a Financial Advisor

Insurance needs can be complex, and personal situations change over time. Our financial advisors can provide professional guidance tailored to your specific financial situation and goals.

Get a Life Insurance Quote

Can I Change the Amount of My Insurance Cover?

Yes, many insurance policies include a Guaranteed Insurability Option that allows you to increase your cover without providing further medical evidence at certain life stages, such as marriage or the birth of a child.

You have the option to increase your cover multiple times, subject to the following restrictions:

– The maximum increase for any single event is capped at the lesser of:

  • 50% of the original coverage amount,
  • or €100,000.

– Over the lifetime of the policy, the total allowable increase in cover is restricted to the lesser of:

  • the original amount of coverage,
  • or €200,000.

Consult with a financial advisor at True Wealth to gain a clear understanding of the Guaranteed Insurability Option.

What Are the Tax Implications of Life Insurance Payouts in Ireland?

All life insurance payouts are made tax-free to the named beneficiary in your policy.

Although the life insurance payout itself is tax-free, the beneficiary might still be liable for inheritance tax based on their relationship to you, the amount they receive, and the Irish tax laws applicable at the time of the payout.

How to Use Life Insurance to Manage Inheritance Tax for Your Dependents

When planning for the future, it’s crucial to consider the implications of inheritance tax on your estate. 

Should you pass away, your dependents may inherit not only your assets but also a substantial tax burden. 

For instance, if your son inherits your house, he may face a significant tax bill that he might not be able to afford, potentially forcing him to sell the property just to pay these taxes. 

To prevent such scenarios, you can strategically use a type of life insurance known as a Section 72 policy. This policy is specifically designed to cover the amount of inheritance tax due, ensuring that your beneficiaries can retain their inheritance without financial strain.


Kate, a single mother, had always planned for her son John’s future, including the inheritance of their family home valued at €600,000. 

Aware of the substantial inheritance tax that John would face, which amounted to €87,450 and could force him to sell the home, Kate took proactive measures. 

She secured a Section 72 life insurance policy specifically designed to cover such a tax burden. Upon her passing, the policy paid out exactly the amount needed, ensuring John could retain the family home without the financial strain of the inheritance tax.

Learn more by reading our guide on how to protect your children from inheritance tax on assets.

Get a Life Insurance Quote

Can a Minor Be Your Life Insurance Beneficiary?

If you have minor children or dependents who might not manage a large sum of money effectively, setting up a trust can be a wise decision. 

A trust ensures that the funds from your life insurance are used in a way that you dictate, such as for education costs or living expenses, until your children are of an age to manage it themselves.

What is a trust?

  • A trust is a legal document.
  • It gives the legal ownership of a policy to Trustees.
  • In the event of the death of the life insured, the proceeds of the policy are paid to the Trustees. They must then forward these proceeds to the beneficiaries you name.

What Are the Benefits of Establishing a Life Insurance Policy in Trust?

Immediate Distribution: Establishing a policy under trust ensures prompt distribution of benefits according to the policyholder’s instructions. The trustees receive the proceeds directly once they provide the necessary documentation.

Bypasses Probate: By setting up a policy under trust, there’s no need to include it in a Will, allowing it to bypass the probate process.

Creditor Protection: A trust can shield the policy proceeds from creditors, provided the policy was not created to intentionally defraud them.

Defined Beneficiary Payments: Trustees are required to distribute the policy’s proceeds to the beneficiaries specified in the trust agreement. While a trustee can also be a beneficiary, this arrangement is generally discouraged to avoid potential conflicts of interest.

Can Life Insurance Be Used to Safeguard a Family Business?

Yes, life insurance can be an effective tool to safeguard a family business. 

There are various types of life insurance specifically tailored to meet the needs of business owners. For example, Key Person Insurance is designed to provide financial stability in the event of the loss of a crucial member whose skills are vital to the business.

By incorporating life insurance into your business and estate planning, you ensure that your family and business are better protected against financial disruptions following your passing.

Check our articles that will provide you with insights on this topic:

Can Your Business Afford to Lose a Key Person?

Key Person Insurance vs. Life Insurance: Which is Right for Your Business?

Alternatively, you can speak to one of our financial advisors at True Wealth.

As a Business Owner, Do I Need to Consider Estate and Succession Planning?

As a business owner, it’s highly advisable to consider both estate and succession planning. 

These processes ensure that your business can continue operating smoothly after your departure, whether due to retirement, incapacity, or unexpected events, and that your assets are distributed according to your wishes. 

Planning ahead also helps minimise potential legal disputes and tax burdens, ultimately securing the financial well-being of your family and the stability of your business.

For answers to any questions you might have, please refer to our articles below.

Estate and Succession Planning for Business Owners

Key Person Insurance vs. Life Insurance: Which is Right for Your Business?

Alternatively, you can talk to one of our financial advisors at True Wealth. We are ready to provide you solutions that suit your unique situation.

What Other Types of Protection Should I Consider for My Estate Plan?

When considering estate planning, it’s important to think beyond just life insurance. 

There are several other types of protection that can play crucial roles in securing your family’s financial stability, such as. 

Income Protection Insurance: it ensures that you continue to receive a portion of your income if you’re unable to work due to illness or injury, helping maintain your family’s lifestyle. 

Serious Illness Cover: it provides a lump sum upon diagnosis of certain critical illnesses, aiding with expenses that aren’t covered by traditional health insurance. 

Health Insurance: it covers medical bills and reduces the financial strain of healthcare costs on your family. 

Multi-Claim Protection: this policy allows multiple claims on the same policy for recurring illnesses, offering continued support. 

Get a Personal & Business Protection Quote With True Wealth 

If you’re ready to take the next steps in protecting your assets and your loved ones’ financial future, consider reaching out to one of our financial advisors at True Wealth who can guide you through the process of selecting the right life insurance and setting up your estate plan effectively.

We are experts in personal and business protection, savings and investments, pension tracing, personal and business financial planning, mortgages, and wealth management and extraction.

All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.

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