Life insurance

What it is for

Life insurance pays a sum — the sum insured — to the beneficiaries you name if you die while the policy is in force. Its purpose is simple: the people who rely on your income can carry on without having to sell the house, interrupt their studies or take on debt.

The money can pay off a loan, replace lost income for a number of years, fund the children’s education or simply give the family time to regroup.

Who typically needs it

• Parents whose children depend on them financially.
• Couples whose household relies on two incomes, or mainly on one.
• Anyone with a mortgage or business loan. For mortgages, the bank often asks for life cover as security.
• The self-employed and business owners, whose income stops with them.
• The stay-at-home parent: the care they provide has a financial value, because if they are gone someone has to provide it.

If nobody depends on your income and you have no debts, the need may be small. That changes over time, so it is worth looking again at every big change: marriage, a child, a home, a new job.

The main types

Term insurance

It covers you for a set number of years, for example until the children are grown or the loan is repaid. If nothing happens, the policy ends without paying anything back. It is the most affordable way to secure a large sum insured. For loans, decreasing cover is often used, which falls in line with the outstanding balance.

Whole of life insurance

It covers you for your whole life, so the sum will be paid at some point. It costs more and suits needs that do not expire: family or estate planning, a child who will always need support, money for the costs of passing on an estate. Read more in Whole of life insurance.

Life cover with savings or investment

It combines cover with building up capital, often through investment funds. The value can go up or down, and there are charges worth understanding. It helps when you want both, but make sure the savings element does not shrink the protection you actually need.

Add-on benefits

Most policies can include extras such as critical illness (a sum on diagnosis of specified conditions), permanent disability, accidental death and waiver of premium if you cannot work.

What drives the cost

• Your age and health
• Smoking
• Your occupation and certain activities
• The sum insured and the term
• The type of policy and any add-ons
• Whether the premium stays level or rises with age

As a rule, the earlier you start and the better your health, the lower the premium usually is for the same cover.

Tax relief in Cyprus

Life insurance premiums are deductible from taxable income up to 7% of the sum insured. Total relief for life premiums, social insurance, GESY, provident or pension funds and medical funds cannot exceed one fifth (20%) of chargeable income. Check your own case with your accountant or the income tax estimator.

Questions to ask before you sign

• What sum insured do I really need, and how was that figure worked out?
• How many years should the cover last?
• Is the premium level or does it rise? What will I be paying in ten years?
• What are the exclusions, and is there a waiting period for any benefit?
• What happens if I stop paying? Is there a surrender value?
• Can I increase the cover later, for example when a child is born, without new medical underwriting?
• Who are the beneficiaries and how do I change them?

Common mistakes

• Having only the cover the bank asked for: it pays the loan, not the family’s income.
• Not disclosing your health, smoking or occupation accurately on the application. An inaccurate answer can cause problems when a claim is made.
• Forgetting to update the beneficiaries after a marriage, divorce or birth.
• Choosing a savings product when the need is pure protection, and ending up under-insured.
• Letting the policy lapse because of a forgotten payment.

This guide is general information, not advice. Every policy has its own terms; a recommendation should be based on your own details, goals and commitments.