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 to pay back the loan amount in the event of death.

Is this 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 one might need. A basic starting point is to multiply your gross salary or your household annual expenses by a factor of eight.

The following quotations are an example of the cost of Life Assurance 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.

Age 30 € 23.19 per month

Age 40 € 40.41 per month

Age 50 € 87.52 per month

You may not need extra Life Assurance or less 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.

Cashflow Planning

The heading makes the task sound a bit boring, and slightly business-like… but the actuality of this term is something we all do in everyday life! Each month, most of us will have bills to pay, maybe a mortgage/rent, household utilities, insurance…followed by food/clothing bills, savings and hopefully some funds to put aside for a social life or something nice to enjoy as a reward for our hard work. This short-term planning is an important and smart habit to have and can help us be prepared for any unexpected bills or events that may occur along the way.

A secure online financial planning system we use for creating financial reviews can help with the long-term cashflow planning. It allows safe access to a portal where you input your expenditure/liabilities, savings/income and most importantly, your objectives now and further into the future. The more information you can input, the clearer the picture can be for your financial adviser and the more accurate the recommendation. It helps to highlight any areas where you may need to perhaps direct funds towards protecting yourself and your family or maybe towards saving for big life events such as starting a family, college fees, buying a property or preparing for life in retirement, to give some examples. Or maybe you have a dream of cruising around the world and want to figure out how you can make it happen!

Although this system helps identify the areas you need to focus on and it is planning for the long-term, nothing is ever set in stone and life can change in a heartbeat. The results and graphs can show you various scenarios throughout your life and the impact they may have on your finances.

Once we provide the results and recommendation, it is up to you to decide on the next step. As life can be ever-changing and unpredictable at times, we feel it is important to review your cashflow status every one to two years or should your circumstances change. So, as you have your monthly planning habits, an annual check-in on your cashflow plan will help give you peace of mind knowing you are using your money wisely and as best you can to achieve your goals.

Apart from mapping out a financial plan for the future, it is also a good opportunity to review any existing life policies or pensions you may have. Once you give signed instruction to a provider, your adviser can contact the life and pension companies on your behalf for further policy details. If you would like to see more information on cashflow planning, just visit www.drumgoolebrokerage.ie/planning.

Did you know....?

Did you know... Multi-Claim Protection can pay out multiple times for different illnesses over the lifetime of the policy and it can also trigger multiple claim components for one illness.

Did you know... Life insurance pays out a lump sum if you die or suffer a critical illness (depending on the type of cover you hold). Death in service is similar. Death in service may be offered by companies as part of an employee’s benefits package. It’s paid out as a tax-free lump sum if you’re employed by the company (i.e. on the payroll) at the time of your death.

Did you know... When you apply for life insurance, you may be asked to complete a medical exam and the life company will pay for this medical exam. It might be a good opportunity to avail of a complimentary check up!

Did you know... Key Person Insurance is a business-specific life insurance (also known as Business Protection) which can compensate a company for the financial loss and other consequences of the death or serious illness diagnosis of a key member of the business.

Did you know...  Income Protection policies and some Life Assurance policies allow you to claim tax relief at either standard tax rate (20% or 40%). This means if you are paying €100 monthly, you may get as much as much as €40 refunded on this premium

Did you know... When structuring life assurance for cohabiting clients and their family, it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act. By setting up an individual Life Assurance policy on the other person (i.e. Life of Another) with the premiums being paid from their individual bank accounts, this can help avoid a potential inheritance tax bill.

Did you know... If you are self-employed, Shareholder/Directorship Protection is an arrangement between company directors, which allows for a deceased’s directors share of a company to be bought by the remaining Directors.

Did you know... by reviewing your Mortgage Protection policy, you may be able to obtain more cover and additional benefits for the same or reduced price than with your original policy.

Did you know... the application process has become a much easier process these days with the availability of editable PDFs and Docusign …one pro to come out of the current situation!

Did you know... For any change in lifestyle (e.g. New house, starting a family) it is a good practise to review your financial needs and check if you are fully covered or to see where you may require additional protection.

€100 For Cover That May Only Cost €70???

Our new financial planning system has been hugely successful and popular in assisting clients with setting budgets and plans in place for their future. We try to get people to visualise what they would like to have as a goal, whether it is to pay off a mortgage early, retire early, travel the world or simply provide for family later in life.

Another handy way it can help is to configure whether a person has enough protection in place. Whether it is mortgage protection when purchasing a home or perhaps income protection for a self-employed person, the first question we ask is …how much have you got to spend? This is a great starting point as we can then provide various quotes to accommodate this figure without going over budget before we have even begun!

The following is an example of a quote for Joe Bloggs who is a married, 35-year-old, non-smoker who told us that he has €100 as a monthly budget for his protection needs. In his case, the three main areas he wanted to review was protection for his income, life cover for his family and specified illness cover.

View fullsize

After we provided Joe with these quotations, we were able to inform him that he can claim tax relief on €75 of this cover at his standard tax rate (20% or 40%). This meant that he could save €15 to €30 a month bringing the total cost (€100) of the cover down to as little as €70 per month.

Family Protection for Cohabiting Couples

When structuring life assurance for cohabiting clients and their family, it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act.

So, if you are cohabiting and have no Will in place, the proceeds of a life assurance policy could end up in the hands of the deceased’s ‘next of kin’, their parents or even their brothers and sisters, if the arrangement is not structured correctly.

With the possible exception of the family home, the total value of all assets passing between two people who are not married or civil partners, are liable to Inheritance and Gift Tax, regardless of how long the couple are living together. This includes the value of any life assurance benefits.

If the beneficiary did not pay the premiums, or if the beneficiary is not the legal spouse or registered civil partner of the person who paid the premiums, the plan proceeds will be liable to Inheritance Tax.

From a tax perspective ‘partners’ are treated as ‘strangers’ for Inheritance Tax purposes with a threshold of only €16,250 (currently) tax-free. The balance is currently taxed at 33%. Where there are children of the current or a previous relationship there can be confusion over who the proceeds of the life assurance contract will be paid to, as well as how the proceeds will be taxed.

For example, a new client recently asked me to set up a Life Assurance policy for her protection needs. This client is not married to her partner, but they have one child. They had initially received (bad) advice to set up a dual life Term Assurance plan along with their joint life Mortgage Protection plan.

In this instance, I recommended they each set up an individual Life Assurance policy on the other person (i.e. Life of Another) with the premiums being paid from their individual bank accounts. It may be slightly more expensive than a joint/dual policy, but they will potentially avoid a future tax bill of 33% as described above.

In the event of death, who will receive the plan proceeds?

The sum assured will automatically be paid to the policy owner in the event of the death of a partner. If both were to die during the term of the plans, the proceeds will go to the estate. In the case of my client, she will leave the entire estate to their son.

Additional Life Cover

Question: I’ve just had my third child and have been advised to put some insurance in place, but after making some enquiries, I’m pretty confused and have a limited budget. What’s the difference between Life, Serious Illness and Permanent Health insurance?

Answer: Yes, insurance is an important consideration, especially when you have people who will be financially dependent on you. Understanding the benefits of each of these types of insurance can be confusing at times. As a guide, Life Cover pays out a lump sum in the event of your death. There are generally two types; one that lasts for a specific number of years called Term Assurance and a Whole of Life alternative which can provide family protection, protection of your estate and business protection (until death). If you are self-employed, Life Cover can also be used to ensure the financial survival of your business in the event of the death or serious illness diagnosis of a director or key employee (Key Person Insurance). Mortgage Protection is also a form of Life Cover which decreases over time as the policy is designed simply to pay off the balance of your Mortgage should you pass away.

Serious Illness cover pays out a lump sum if you are diagnosed with a specified serious illness during a determined number of years. The list of defined illnesses can vary from company to company but generally most major illnesses like cancer, multiple sclerosis and stroke are covered. It can be taken out on its own or alongside Life Cover. It can also help subsidise a missing income if you or your spouse/partner are unable to work due to illness or disability.

Permanent Health insurance is more commonly called Income Protection and it effectively replaces some of your income (up to a max. 75%) if you are unable to work for an extended period of time due to an accident or illness. This type of policy provides you with a regular income, starting after a deferred period (from four to 52 weeks) with the potential to continue until you retire depending on your health. Affordability is obviously an important factor and your age, current health and the amount of money you want to be insured for all impact the cost.

Conclusion: For any change in lifestyle (eg. New house, starting a family) it is a good practise to review your financial needs and check if you are fully covered or to see where you may require additional protection. One call to your financial broker can help you understand the options available and to ensure you are spending your hard-earned money appropriately.

Multi-Claim Protection Cover

Multi-Claim Protection Cover has two main differentiators to some of the other protection products available on the market. Namely, it can pay out multiple times for different illnesses over the lifetime of the policy and it can also trigger multiple claim components for one illness.

The claims triggers are designed to be proportionate to the severity of the illness and its impact on the customer’s life. It looks to link pay-outs to actual life-changing or traumatic health events and their impacts, rather than the solitary illness and one-time pay-out.

MCPC is more inclusive than some other types of protection cover. For example, people who have survived a heart attack, cancer or a stroke can be eligible for this policy. Similarly, some people with type 2 diabetes or MS can, with relevant exclusions, get cover.

Some other benefits are;

·              Provides cover for the impact of a serious illness such as having a heart attack or receiving cancer treatment eg. medical devices required for the long-term, taking time off work, or making adaptations to your home if needed due to the impact of the illness.

·              It also covers other life impacts, for instance, a long hospital stay such as after a serious road traffic accident or serious surgeries like a hip replacement.

·              Life cover is inbuilt into the policy, you can add extra life cover if needed.

·              This policy can pay out 5% to 100% of your cover (your original sum assured when you take out your policy) depending on the illness or condition. This means for less serious illnesses or treatments, it will pay out potentially less than 100% of your cover, keeping the rest of your cover in place for any future, more severe illnesses. For illnesses or treatments that have a more serious impact, it pays out a higher amount.

·              After a claim, your monthly payments (premium) will not change.

·              Children's cover and premature birth cover included.

·              Helping Hand service - Available at no extra cost, this support service can help your family (your spouse/partner and children) through a difficult time if you're diagnosed with a serious illness or pass away.

Example: Mary is 42 and has €100,000 cover. When diagnosed with invasive breast cancer Mary is referred for chemotherapy, radiotherapy and a mastectomy (20% paid out for chemotherapy, 20% for radiotherapy, 20% for major surgery -mastectomy to remove an invasive tumour) MCPC paid out 60% of Mary’s cover (€60,000) which would leave Mary with €40,000 cover for any future illnesses or health setbacks covered under her policy.