Do I have enough Life Assurance cover?

It is understood that if you plan to purchase a property in Ireland, you will be required to have a Mortgage Protection policy in place. This policy is used to pay back the mortgage loan amount in the event of death.

Is Mortgage Protection enough life cover? Depending on your age and whether you have a family or dependents, then no, Mortgage Protection alone is regularly not enough.

Why would I need more Life Assurance cover? A salary coming into a household is used for bills, loans, savings, and other big life events. If this salary ceases in the event of death, a replacement will be needed to cover the shortfall. If you have a young family, you will need more cover as you will need any benefits to last for a longer time.

How much is enough? We tend to avoid thinking about losing our loved ones, let alone the financial consequences. There is more than one way to work out how much life cover you might need. A basic starting point is to multiply your gross salary or your household annual expenses by a factor of eight.

The following Dual Life Assurance quotations are an example of the cost for a couple who are non-smokers and with the option of conversion (this allows you to convert your policy before the term ends to a new policy without the need to provide medical evidence).

The term is for 10 years, and the cover is €250,000. The premiums below cover both lives and is dual cover (meaning the amount of €250,000 will be paid out for each individual life in the event of death).

Sample quotes December 2023

You may require less Life Assurance cover in the case where; your dependents are financially independent, you have death-in-service benefit through your job, you have substantial savings, or you have investments or a property which could provide an income or be sold.

It is beneficial to know that at various times throughout the year, life companies can offer special discounts on premiums to brokers. For example, one company is currently offering 6 months cashback on certain new protection policies.

Life assurance that continues when you stop paying premiums….

I wrote a piece last year about “Whole of Life Assurance”. There are different benefits available, but the maturity of two of my clients’ policies prompted me to write about it this month.

Both sets of clients took the policies out circa 12 years ago, but one client recently phoned me to ask “do we really continue to have life assurance now that we have finished paying the premium?”. It sounded too good to be true to him and I was able to say, “yes you do”.

So, what was the policy? Our clients were aged 54 and 57 when they set up this plan originally (they are now 66 and 69). The cost of the policy was €202 per month at the time with a term of 12 years. The total premiums they have paid during this term is €29,142.

During the 12-year term of the plan, they each had €50,000 life cover. Now that the term is complete, they stop paying the premium, but they both continue to have €25,000 life cover each for the rest of their lives. In short, these policies will now cover any future funeral expenses and they will not have to put other funds aside to cover this situation. They just keep the policy documents somewhere safe until needed.

This is a really popular life assurance plan for people to use, particularly to pay for while in employment and be able to just put it aside at retirement knowing you are covered. Many people wonder how or why would a life company offer such a deal? Premiums of €29,142 for €50,000 guaranteed life cover?

There are two major factors as to why life companies can offer such a deal. One is that there is a significant amount of people who will cancel the policy before the term is up. Once you take out a plan like this you really should try to complete the term on the plan. The second reason is because the company has already factored in that most of us will live to our mid 80s and at that stage inflation will have reduced the actual cost for them to pay out the claim.

I have been receiving more queries about different types of life cover, but these policies maturing gave me great satisfaction to see my clients very happy with the outcome. I know some people say “life cover is dead money” for different reasons, particularly as most life cover policies require you to keep paying premiums until you die. This policy is a good alternative to consider.

Attitude to Risk - not just for investments

"Attitude to risk" is a term often used to describe an investors sentiment to risk/volatility when choosing investments to reach their savings goal. Every person has a different attitude towards risk when it comes to financial gains or losses and there are varied reasons why each person may be uniquely suited to a specific strategy. In general, though, people tend not to associate risk with deciding on life assurance and serious illness cover.

Just as attitude to risk in investments is based on a persons’ individual circumstance, so too is choosing the right amount of life and illness cover. The usual type of questions you get from an investments perspective is “how would you rate the degree of risk you are willing to take in your financial affairs? The optional answers range from “Extremely low risk to “Extremely high risk”. People generally understand that when the value of their investment/pension goes down a lot it may have a significant impact on their lives if it doesn’t recover.

The same question can apply to a person’s health. If you consider your investment value/pot the same thing as your Body/Mind, the financial impact to a loss of either body/mind can be equally damaging. Part of the difference appears to be that most people really do not believe they will ever become unwell or die, the thinking being that this only happens to other people.

I regularly meet with people to do financial reviews with savings into a pension or growing their money as their priority. Quite often they do not consider life, illness or salary protection important, particularly if they are in good health (which ironically is usually the best time to take out these covers). It doesn’t actually matter if you value these covers or not, what matters is what your honest answer is to the question “If I or my partner died or was unable to work for a prolonged period of time, how would our family cope financially?”. If the honest answer is that you would struggle, then the next question has to be “Why would I not review my cover to see if I can protect our family?”.

I was quite shocked recently hearing news of three different people I know, to have suffered either the death of their partners (in their 40s) and one with a terminal illness diagnosis. A sombre but important reminder that we are all vulnerable to illness and death at every stage of our lives.

Whole of Life Insurance… does what is says on the tin!

Whole of Life Cover is a life assurance policy that lasts for a whole lifetime and is not limited to a specific term.

What are the benefits of this type of policy?

If you pass away this policy will provide a cash lump sum payment to your family. This can be used to cover funeral expenses or for settling outstanding debts. In the event of a definite terminal illness diagnosis, the full life cover payment can be made straight away to the policy owner to help with ongoing bills and expenses.

It can also provide tax-efficient inheritance planning cover for your family once it is set up as a ‘Section 72’ life policy. They may be liable for inheritance tax which can be a massive burden at an already difficult time. Inheritance tax is payable to the Revenue Commissioners when the value of the assets inherited is higher than a certain threshold. Depending on the assets being inherited, they may need to borrow money or sell a part of their inheritance in order to cover a potential tax bill.

There are optional benefits that can be chosen when setting up the policy which are dependent on the provider you choose. For example, Royal London provide an option to include a Life Changes feature which means if you stop paying premiums after your policy has been in place for at least 16 years, you can receive a cash amount back or have a guaranteed amount of life cover remaining for the rest of your life.

How do I set up a policy?

Whole of Life cover can be taken out by anyone aged between 18 to 74 years and the cover is for the rest of their life. A financial advisor can help you determine the level of cover you need depending on your circumstances and your dependents. Once the application is accepted, you then pay a set amount on a regular basis which is usually guaranteed never to increase (unless you choose inflation protection/indexation as an additional option).

When you are considering the cover you need, you should take account of

• any other loans and bills

• the income your family will need to live on

• any funeral expenses

• any inheritance tax bill that may arise when you die

A sample quotation for a non-smoking couple aged 43 and 44, for Dual Life Cover of €30,000 each (including the Life Changes option as above, without indexation) works out at €66.51 per month.

(Quote as of May 2022)

Specified Illness Cover… what is it and who can benefit?

We can often take our health for granted and may never give a second thought to what would happen to us, or our family should we suffer an illness. An unexpected serious illness can add emotional and financial worry at a tough time. Should you be unable to work due to an illness or even through the recovery stage, it would be reassuring to know that a Specified Illness policy will at the least ease the financial worry.

How does it work?

This type of cover pays you a lump sum amount if you are diagnosed with one of the specified illnesses covered on your plan. Once accepted, the cost of your cover will never increase during the term of your plan unless you choose to index your benefits or premiums or apply to increase your level of cover.

Once a claim has been successful, the lump sum can be used however you like to help you and your family cope financially during a difficult time. Some examples may include;

• Pay for medical treatment and expenses.

• Help with your mortgage or other loans or bills.

• Invest to provide a regular income.

• Make any necessary alterations to your home.

Children’s Cover

On most policies, children aged between 6 months and 18 years (21 years for children in full time education) of the life insured person are automatically covered for up to 50% of the Specified Illness Benefit at the time of diagnosis, meaning if your child is diagnosed with or undergoes surgery for one of the specified illnesses covered, you will receive up to a maximum of €25,000.

Additional Optional Benefits

You can include a ‘conversion option’ to let you extend your cover at any time without having to provide evidence of your health.

Advance payment of benefit for heart surgery – Royal London provides an upfront payment of up to €20,000 if you need specific heart-related surgery in the future.

New Ireland will allow you to add benefits to protect yourself financially in the short-term in the event of:

·         A stay in hospital (for more than 3 nights)

·         An accident which leaves you unable to work (for more than 2 weeks)

·         Suffering one of a number of broken bones

·         Undergoing one of a number of surgeries listed

Aviva have two additional benefits automatically included at no extra cost called Best Doctors® Second Medical Opinion service and Aviva Family Care (a counselling & psychotherapy service provided by Teladoc Health).

Life Assurance Cover…following Covid-19

If you’ve had COVID-19 and now want to set up a life assurance policy, you may be wondering where to start. We previously discussed the impact of Covid-19 on various protection plans and as the pandemic has evolved over the past two years, so too have the requirements for applications.

Will COVID-19 impact my ability to get life assurance?

If you had COVID-19 and did not require an in-patient hospital stay, are now back at work, and you have fully recovered with no other significant underlying condition, your application should proceed as normal. In general, people are not refused life assurance for this reason.

After having COVID-19, is there a waiting period before I can get life assurance?

The general rule in life assurance providers is that once you are one-month post-COVID, and fully recovered, you can apply as normal.

Assuming your application is accepted at standard rates, you will be quoted the normal premium rate for life assurance. Note, this one-month post-COVID period applies to applications for mortgage protection life cover as well.

Has COVID-19 altered the life insurance market?

Sadly, statistics have shown that COVID-19 deaths occur more often in elderly people, and people who have significant underlying health issues or conditions. Due to this information, the insurance market in Ireland and in the UK in general is more limited when offering cover to those with significant underlying medical conditions.

This means that a very small number of people who would have been eligible for life assurance before the pandemic are temporarily unavailable to access this cover, regardless of whether they have had COVID-19 or not. That said, most providers look at every application individually, taking all details into account, to see if it’s possible to go ahead with life cover.

What happens if I have a serious underlying condition, but I’m also fully vaccinated against COVID-19?

If you have a significant underlying condition but are fully vaccinated, this is considered a positive factor when applying for life assurance.

Does my occupation make a difference to my life assurance application?

Applications for life assurance cover are treated equally, irrespective of an individual’s job or career. For example, health care or frontline workers are not treated any differently due to COVID-19.

If a person with a life assurance policy has an adverse reaction to a COVID-19 vaccine and death occurs as a result, will the policy sum be paid to the beneficiaries?

Yes, they will be covered under their life policy should this occur.

Monthly Income in the Event of Death

This month I am highlighting a type of life cover which will provide a monthly income on death. Most life protection policies pay out one lump sum, so this policy type is designed to replace some or all, of an income coming into a household.

What are the benefits of this type of policy?

Mortgage Protection will cover any outstanding mortgage amount, which is most likely the largest monthly expenditure in most households. Although mortgage repayments are only a portion of the overall monthly outgoings a family may have, utility bills, groceries, clothing, education costs and possible outstanding loans are among the many other expenses. A regular monthly income might be easier to manage than a lump sum and would help keep the household on track.

How does it work?

In the event of a death during the chosen term of the policy, an income will be provided from the date of the claim until the end of the policy term. Income will be paid for a minimum term of two years once a claim is made even if the claim occurs within two years of the end of the term.

How much does it cost and how much cover is needed?

Let’s imagine you have mortgage protection which will clear your mortgage. You have calculated that you would require a monthly income of approximately €3,000 to compensate for the loss of earnings into the household. You want to cover this amount until your children are financially independent, so determine that you require this income cover for a term of 20 years.

Life Cover (Monthly Income) Premium (Monthly) Term

€1,500 €24.35 20 Years

€3,000 €45.66 20 Years

Sample quotations above are based on a non-smoker male / female, aged 40. Source: Zurich

 Some of the additional benefits that may be included with this cover without additional cost, can be Accidental Death Benefit, Guaranteed Insurability Option and Terminal Illness Benefit.