The Government has agreed to sell Irish Life to Canadian firm Great-West, the parent company of Canada Life, for €1.3 billion.
The deal will see an additional dividend of €40m being paid to the State prior to completion.
Finance Minister Michael Noonan said the deal would see the state recoup its entire investment in Irish Life.
A previous attempt to sell the company was abandoned in December 2011 when the bids received from the various interested parties, including Great-West, failed to meet the €1.3 billion valuation.
"Our deficit is on a downward trajectory and we are beginning to attract the levels of investment required to create jobs and to make a full return to the markets,'' the Minister said.
''This progress was one of the reasons that led Great-West Lifeco to renew their interest in late November 2012, almost a year to the day after they previously withdrew," Mr Noonan added.
Irish Life manages approximately one million policies, with over €37 billion of assets under management and employs 2,200 people in Ireland.
Under the terms of the deal, the life and pensions operations of Irish Life and Canada Life in Ireland will come together as one combined business, which will operate under the Irish Life brand name.
Irish Life said that the change of ownership does not in any way affect the terms and conditions or benefits of customers' existing Irish Life plans and customers do not need to take any action as a result of this announcement.
Kevin Murphy, group chief executive of Irish Life, said that the acquisition by Great-West provided the company with a parent with "financial strength and stability".
"Combining the businesses of Irish Life and Canada Life (Ireland) represents a transformational deal in the Irish market and we expect that the combined business will continue to set the pace in the life and pensions industry in Ireland," he said.
The deal is subject to competition and financial regulatory approval and is expected to be completed by July of this year.
The sale will also help push the Government's debt to just below 120% of GDP this year from an estimate in December that it would peak above 121%, a statement from the Department of Finance said.
Today's sale follows a €1 billion sale of debt in Bank of Ireland last month as the Government begins to cut its exposure to the financial sector that it bailed out with €64 billion after the property crash hit the economy.
''The acquisition of Irish Life is transformational for our companies in Ireland,'' commented Allen Loney, president and chief executive of Great-West Lifeco.
''It allows us to achieve - with a single transaction - the leading position in life insurance, pensions and investment management, and is consistent with Great-West Lifeco’s global business strategy of developing significant market positions in the sectors where the company participates,'' Mr Looney added.
Once the deal has been finalised, Canada Life said that the businesses will be fully integrated over an 18-month period. It said this is expected to result in pre-tax cost savings of €40m a year, through efficiencies related to computer systems, relocating Canada Life (Ireland) to Irish Life's Dublin headquarters and other operational efficiencies.
''It is anticipated that any job losses at the two companies will be achieved on a voluntary basis. The companies are committed to ensuring that all staff will continue to be treated fairly,'' Canada Life said.
Life, pension and investment provider Canada Life has over 150,000 customers in Ireland. Established here since 1903, the Canada Life group employs more than 600 people. The company's Irish operations serve as a hub for the company's expanding presence in Europe.
Great-West Lifeco is an international financial services holding company with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses. It has operations in Canada, the US, Europe and Asia.