Protection life insurance is essential for safeguarding your financial future and that of your loved ones.
There are various types of protection plans available, each designed to meet specific needs and circumstances.
Here, we'll explore three key types offered by Laferla from MAPFRE MSV Life: Level Term Protection, Decreasing Term Protection, and Whole of Life Cover.
We'll also provide an explanation of some common terms and options found in these plans, to help you understand your options better.
1. Level Term Protection (sold as the MAPFRE MSV Life Protection Plan)
- Description: This plan provides a fixed amount (example €300,000) of cover for a specified term (example 35 years). The benefit amount remains constant throughout the policy term, ensuring that your beneficiaries receive a predetermined sum, if you pass away during this period.
- If you are using this type of policy to cover a financing facility such as a loan, where the bank's exposure decreases each year as you are paying back your loan, then in the event of a claim giving rise to a payout of the sum insured, the bank will retain the amounts to cover their remaining exposure, and the remainder of the amount may be paid out to your estate.
As a practical example, if you are covered for €100,000 for a period of 10 years, and pass away on year 6 after having already paid back €60,000 out of your €100,000 loan amount, the insurance policy will still pay out a €100,000 sum insured. In this case, your bank will retain the €40,000 outstanding amount on the loan, and the remainder of €60,000 may be paid out to your estate. - Unique Feature: The key differentiator of this plan is the fixed benefit amount, which does not change regardless of changes in your circumstances or inflation.
- Demands and Needs: Ideal for family protection, business protection, and estate planning. It offers peace of mind, knowing that your loved ones will have financial stability in your absence.
2. Decreasing Term Protection (sold as the MAPFRE MSV Life Loan Protection Plan)
- Description: This plan is designed to reduce its cover amount over time, typically aligned with the decreasing balance of a loan or mortgage.
For illustration purposes, let's assume that you take out a Decreasing Term Protection Plan for an amount of €100,000 and a duration of 10 years, to cover a €100,000 loan that you would pay over 10 years at a rate of €10,000 per year. Assuming a linear repayment amount of €10,000 per year, your Decreasing Term Protection Plan will offer the following sum insured throughout its validity period:
Year 1 €100,000 Year 2 €90,000 Year 3 €80,000 Year 4 €70,000 Year 5 €60,000 Year 6 €50,000 Year 7 €40,000 Year 8 €30,000 Year 9 €20,000 Year 10 €10,000
This means that a creditor, such as a bank, will be able to guarantee that it is always being covered for the remaining exposure of a financing facility. - Unique Feature: The decreasing cover amount is its hallmark, making it a cost-effective solution for protecting credit facilities like loans or mortgages.
- Demands and Needs: Suitable for those with decreasing liabilities over time, such as a mortgage. It ensures that your outstanding debts are covered without leaving a financial burden on your family.
3. Whole of Life Cover
- Description: This is a permanent life insurance policy that provides coverage for your entire life. The benefit is paid out to your beneficiaries upon your death, whenever that may occur.
- Unique Feature: Unlike term insurance, it offers lifelong protection and does not expire as long as premiums are paid.
- Demands and Needs: Best for long-term estate planning and asset consolidation. It provides a guaranteed legacy for your beneficiaries, regardless of when you pass away.
Policy Option: Single-Life vs. Joint-Life Basis
- Single-Life: Covers one individual, and the benefit is paid out upon their death.
- Joint-Life First Death: Covers two individuals, and the benefit is paid out upon the first death. This is the required option when a joint-policy is being taken out for credit protection reasons (example to cover a loan or mortgage).
- Joint-Life Second Death: Covers two individuals, with the benefit paid after both have passed away. This option often offers more favorable rates and is suitable for estate planning.
Definitions
-
Pledge: In the context of insurance and finance, a pledge is a legal agreement where an asset (such as an insurance policy) is used as security or collateral for a debt. When a policyholder pledges an insurance policy, they are essentially promising it to a creditor (like a bank) as a guarantee for loan repayment. If the policyholder fails to repay the loan, the creditor has the right to claim the benefits of the insurance policy to recover the owed amount. In the case of life insurance, if the policyholder passes away before repaying the loan, the death benefit from the insurance policy is paid directly to the creditor holding the pledge.
-
Beneficiary: A beneficiary is a person or entity designated to receive the benefits from an insurance policy or financial account in the event of the policyholder's death. In life insurance, the beneficiary is the individual or group who will receive the death benefit. Policyholders can name one or multiple beneficiaries and can also specify the proportion of the benefit each beneficiary will receive. Beneficiaries are typically family members, but they can also be friends, trusts, charities, or organizations. The policyholder has the right to change the beneficiary designation at any time during the policy term.
Claim Payouts
- Pledged Policy: If the policy is pledged to a creditor (e.g., a bank), the claim amount is paid directly to them.
- Beneficiaries: You can appoint one or multiple beneficiaries on your policy. In the event of a claim, the benefit is paid to them according to the percentages that you set.
- Will and Estate: If no beneficiary is specified and the policy is not pledged, the policy may be included in your will and paid out according to what you specify in your will. Otherwise, it is paid to your estate as per law.
Conclusion
Choosing the right life insurance plan depends on your personal needs and financial goals. Whether it's ensuring your family's financial security, covering debts, or planning your estate, there's a plan that fits your requirements.
This article is intended to provide high-level information about the products mentioned for educational purposes and should not be interpreted as advice. Please read the Key Features Document and Policy Document of each plan to understand the benefits further.