The Ultimate Guide to Financial Insurance: What It Is, How It Works, and What You Need

In an unpredictable world, financial insurance is a powerful tool that helps individuals and businesses safeguard their income, assets, and future plans. While most people are familiar with car, health, or home insurance, financial insurance is a broader term encompassing policies that protect your earnings, debt obligations, and financial dependents.

Whether you're a young professional just starting out, a parent with a mortgage, or a business owner with key staff, understanding financial insurance can mean the difference between security and financial hardship. In this guide, we’ll walk you through the essential types of financial insurance, who needs them, and how to choose the right coverage for your situation.

What is Financial Insurance?

Financial insurance refers to a category of insurance products designed to protect your financial well-being. These policies offer payouts or ongoing support in the event of illness, disability, death, or economic hardship — essentially any situation where you might lose income or be unable to meet financial obligations.

It differs from general insurance (like auto or home insurance) because it focuses directly on income protection, loan repayment, business continuity, and family security. It’s not about protecting things — it’s about protecting livelihoods.

2. Types of Financial Insurance

life insurance

Life insurance provides a lump-sum payment to your beneficiaries if you pass away. It’s often used to:

  • Cover funeral costs

  • Replace lost income for dependents

  • Pay off debts (like mortgages)

  • Support children's education

  • Ensure smooth inheritance and estate planning

Term life insurance, whole of life and life of another

  • Term Life – Affordable coverage for a set period (e.g., 10–30 years)

  • Whole Life – Lifetime coverage with a cash value component

  • Life of Another – A policy taken out on another person (commonly used by unmarried couples, business partners, or those with shared financial commitments)

Who it's for: Anyone with a home or family.

Income protection insurance

Also known as disability insurance, income protection pays a regular monthly benefit if you’re unable to work due to illness or injury. It can last for a few years or even until retirement, depending on the policy.

Key features:

  • Waiting periods (how soon payments start)

  • Benefit periods (how long it pays out)

  • Typically covers up to 75% of your salary

Who it's for: Anyone with an income.

specified serious illness insurance Mortgage protection insurance

This policy pays a tax-free lump sum if you're diagnosed with a serious illness like cancer, stroke, or heart attack. The funds can help cover:

  • Medical treatment costs

  • Time off work

  • Childcare or home modifications

It complements income protection but doesn’t replace ongoing income.

Who it's for: Anyone with an income.

Mortgage protection insurance

Mortgage protection insurance is designed to pay off the remaining balance of your mortgage loan if you unexpectedly pass away during the term of the mortgage. It ensures that your loved ones aren’t burdened with your mortgage debt.

  • It is compulsory for mortgage holders to have mortgage protection in place in many cases.

  • You are not required to take this policy from your mortgage provider — you are free to purchase it from any insurance provider you choose, often at a more competitive rate.

Who it's for: Anyone with a mortgage.

Business financial insurance

Businesses need financial insurance to survive unexpected events.

Key Person Insurance – This policy covers the loss of a key employee, founder, or revenue generator due to death or serious illness. It provides a lump sum payout that can help with recruitment, training, or offsetting lost profits.

Who it's for: Business owners or companies dependent on key individuals.

Estate planning and inheritance taxes

Financial insurance also plays a vital role in estate planning, particularly when it comes to inheritance tax obligations.

In Ireland, for example:

  • A Section 72 policy is a Revenue-approved life insurance policy used to cover inheritance tax. The payout from this policy is not subject to inheritance tax if structured correctly.

  • A Section 73 policy is used to cover Capital Acquisitions Tax (CAT) on gifts, particularly for those planning lifetime transfers of assets.

These tools ensure that your loved ones receive your estate intact — without needing to sell off assets to meet tax bills.

Who it's for: Anyone with significant assets, property, or a planned estate.

3. Who Needs Financial Insurance?

You may benefit from financial insurance if you:

  • Have dependents relying on your income

  • Carry mortgage or personal debt

  • Are self-employed or own a business

  • Want to plan for the unexpected

  • Would face hardship if your income stopped suddenly

Even if you’re young and healthy, insurance premiums are lower the earlier you take out a policy — and life can change quickly.

4. How Much Coverage Do You Need?

It depends on your:

  • Current income and expenses

  • Debts (mortgage, credit cards, loans)

  • Dependents’ needs (education, lifestyle)

  • Existing assets or emergency funds

General guidelines:

  • Life insurance: 5–10x your annual income

  • Income protection: Up to 75% of your gross monthly income

  • Critical illness: Enough to cover 1–2 years of expenses

For a tailored assessment, speak to us for a personalised recommendation based on your needs.

5. Choosing the Right Policy

When evaluating options:

  • Check waiting periods and benefit periods

  • Review exclusions (pre-existing conditions, risky activities)

  • Compare costs vs benefits

  • Choose between the best insurance providers on the market

  • Understand how to claim tax relief where applicable (e.g., on income protection premiums)

David Murphy