Life insurance, it’s one of those topics you only think about when you have to. You’ve bought a new house or the kids are getting that bit bigger. Perhaps you took out mortgage protection 20 years ago and haven’t really thought about it since?
As the capital acquisitions tax threshold was extended in Budget 2016, Ciara Leahy talks to Neal Kelly, director of Thomond Asset Management in Limerick, to dispel the confusion that lies around different insurance packages.
1 Mortgage protection
What does mortgage protection do? It pays off your outstanding mortgage balance in the event of your death.
You’re a young, excited couple on the verge of getting your very own house. Your new life lies before you and then someone mentions mortgage protection. Talks of your other half popping their clogs aren’t exactly what you want to think about, but this protection is compulsory.
Neal says: “Although mortgage protection is the cheapest form of life insurance, it’s something you really should shop around for. The bank will offer it to you and out of stress, and sometimes laziness, people will just tick that box. However, be aware that the bank will only offer you one price. Bank of Ireland, for example, is tied to the New Ireland insurance company, while AIB and Ulster Bank are tied to Irish Life. On the other hand, insurance brokers or financial advisers will get you a quote from every player on the market. Unlike other types of insurance, you’re simply looking for the best price you can get. After all, once the insurance company gets the death cert, they will have to pay out regardless if you paid the most expensive quote on the market or the cheapest.”
Although it’s not compulsory to take out mortgage protection for investment properties, it is sensible to get covered. You don’t want to leave your other half or children with that big debt.
2 Life insurance
What does life insurance do?
It takes care of your family in the event of your death or the death of your partner.
Life insurance, also known as life assurance, it is driven by your individual needs so there are different types you can opt for.
2a – Term Insurance
This is the most popular form of life assurance. You sit down with your financial adviser and explain your situation. Perhaps it’s that you have two children and you want to provide for the family until they are both finished college, as our case study shows. Your life assurance will protect you for 20 years.
Neal says: “It is sensible to add a conversion to this type of product. The thing is, if you are affected by a serious illness 10 years into your policy, chances are you’ll never get a life insurance policy after your current one lapses. Adding a conversion will cost you more, but it does mean that in the event of something happening, you can convert it into a new policy without any medical underwriting. It’s one of those things that you don’t appreciate until you have to call on it.”
2b – Whole of Life Insurance
Whole of life insurance does exactly what it says on the tin, it covers you for the whole of your life, says Neal: “One problem with this policy is that it can work out very expensive. It comes with a review, so the price can increase dramatically as time goes on, especially for older people.”
However, it can suit farming families more than others, especially when it comes to succession planning. That’s because as part of this policy you can establish that it will also cover your tax bill. In Budget 2016, the threshold for capital acquisitions tax rose from €225,000 to €280,000. However, depending on the value of the farm, your children can still be left with a hefty tax bill when the land is left to them. With this, you assign the policy to the Revenue to cover the tax bill.
3 Specified illness cover
What does specified illness cover do? If you fall seriously ill, your expenses, including your mortgage, can be covered.
Statistically, you’re more likely to be affected by a serious illness rather than to die early in life. This package covers you in the event of illnesses such as cancer, strokes or serious heart disease. You can tag this onto packages such as the life assurance one and you can also opt for having accelerated serious illness cover, which means you could draw it down while you are still alive. For example, if you had a life assurance policy and serious illness cover, you could draw down €200,000 of your serious illness cover to clear your mortgage while you are ill. The policy then lapses and you obviously can’t take out a new one. However, your life assurance policy will still be in place in the event of your death.
4Income protection
What does income protection do? If you cannot work due to injury it pays your income.
If you had an accident in the morning, how long could your family survive without your income? Although serious illness protection is important, it is a finite amount. Income protection typically covers for up to 75% of your income until you reach retirement age. It is extremely important for those that are self employed. The problem though is that it is very difficult for farmers to be covered and if you are, it will cost quite an amount.
Neal explains: “The insurance companies have different occupational classes, rated according to the percentage of accidents in that sector. Farming is an accident-prone profession by nature. Regardless of whether you are a farmer or not, it is the most expensive coverage to get, but if you can get it and afford it, it is the most valuable.” CL
Case study
John and Linda Murphy are both 33 and have bought a new home. While they are taking out the compulsory mortgage cover, they have also decided to look at the rest of their insurance options. They have two children Kate (six) and John Junior (four). John farms and Linda works in marketing. They’re non-smokers.
1 Mortgage protection: the best rate for this compulsory requirement on a mortgage of €240,000 over 25 years is €20.55 per month with Zurich Life.
2 Life insurance: while the above quote just covers the mortgage, John and Linda are looking for a more inclusive life insurance package. But how much cover should be in place? A number of factors can be considered when establishing the amount of cover needed:
• Loss of net income of the deceased spouse.• Removing the need to pay a mortgage from the equation.• The cost of education all the way through to third level.• Other debts, ie car loans.Example
Loss of net income from primary earner, €25,000/annum. Mortgage repayments of €1,350/month and 18 years until the youngest child completes college.
Net income: €25,000 Minus the mortage cost: €16,200/annum Net annual requirement: €8,800 Estimate third level costs: €60,000 (two children for four years) That equals: €8,800 x 18, plus €60,000 Amount of cover = €218,400 Cost of cover: €26.13/monthStatistically, you are more likely to contract a serious illness and recover, so it is always advisable to include some serious illness cover. On an accelerated basis, with serious illness cover of €218,400, the cost would increase to €109.03/month.
3 Section 785 cover (pension term assurance): The most tax efficient method of providing the above life cover for a farmer is through pension term assurance, where the client will receive tax relief on the premiums paid.
4 Income protection: This has always been a difficult cover to obtain for farmers and only a few companies will consider this. The cost of cover falls under the following terms:
• Male non-smoker.• 33-years-old.• Class 4 occupation.• Retirement age of 65.• Deferred payment of 26 Week.Total cost: €140.14/month.
For more information, log on to www.thomondam.com
Life insurance, it’s one of those topics you only think about when you have to. You’ve bought a new house or the kids are getting that bit bigger. Perhaps you took out mortgage protection 20 years ago and haven’t really thought about it since?
As the capital acquisitions tax threshold was extended in Budget 2016, Ciara Leahy talks to Neal Kelly, director of Thomond Asset Management in Limerick, to dispel the confusion that lies around different insurance packages.
1 Mortgage protection
What does mortgage protection do? It pays off your outstanding mortgage balance in the event of your death.
You’re a young, excited couple on the verge of getting your very own house. Your new life lies before you and then someone mentions mortgage protection. Talks of your other half popping their clogs aren’t exactly what you want to think about, but this protection is compulsory.
Neal says: “Although mortgage protection is the cheapest form of life insurance, it’s something you really should shop around for. The bank will offer it to you and out of stress, and sometimes laziness, people will just tick that box. However, be aware that the bank will only offer you one price. Bank of Ireland, for example, is tied to the New Ireland insurance company, while AIB and Ulster Bank are tied to Irish Life. On the other hand, insurance brokers or financial advisers will get you a quote from every player on the market. Unlike other types of insurance, you’re simply looking for the best price you can get. After all, once the insurance company gets the death cert, they will have to pay out regardless if you paid the most expensive quote on the market or the cheapest.”
Although it’s not compulsory to take out mortgage protection for investment properties, it is sensible to get covered. You don’t want to leave your other half or children with that big debt.
2 Life insurance
What does life insurance do?
It takes care of your family in the event of your death or the death of your partner.
Life insurance, also known as life assurance, it is driven by your individual needs so there are different types you can opt for.
2a – Term Insurance
This is the most popular form of life assurance. You sit down with your financial adviser and explain your situation. Perhaps it’s that you have two children and you want to provide for the family until they are both finished college, as our case study shows. Your life assurance will protect you for 20 years.
Neal says: “It is sensible to add a conversion to this type of product. The thing is, if you are affected by a serious illness 10 years into your policy, chances are you’ll never get a life insurance policy after your current one lapses. Adding a conversion will cost you more, but it does mean that in the event of something happening, you can convert it into a new policy without any medical underwriting. It’s one of those things that you don’t appreciate until you have to call on it.”
2b – Whole of Life Insurance
Whole of life insurance does exactly what it says on the tin, it covers you for the whole of your life, says Neal: “One problem with this policy is that it can work out very expensive. It comes with a review, so the price can increase dramatically as time goes on, especially for older people.”
However, it can suit farming families more than others, especially when it comes to succession planning. That’s because as part of this policy you can establish that it will also cover your tax bill. In Budget 2016, the threshold for capital acquisitions tax rose from €225,000 to €280,000. However, depending on the value of the farm, your children can still be left with a hefty tax bill when the land is left to them. With this, you assign the policy to the Revenue to cover the tax bill.
3 Specified illness cover
What does specified illness cover do? If you fall seriously ill, your expenses, including your mortgage, can be covered.
Statistically, you’re more likely to be affected by a serious illness rather than to die early in life. This package covers you in the event of illnesses such as cancer, strokes or serious heart disease. You can tag this onto packages such as the life assurance one and you can also opt for having accelerated serious illness cover, which means you could draw it down while you are still alive. For example, if you had a life assurance policy and serious illness cover, you could draw down €200,000 of your serious illness cover to clear your mortgage while you are ill. The policy then lapses and you obviously can’t take out a new one. However, your life assurance policy will still be in place in the event of your death.
4Income protection
What does income protection do? If you cannot work due to injury it pays your income.
If you had an accident in the morning, how long could your family survive without your income? Although serious illness protection is important, it is a finite amount. Income protection typically covers for up to 75% of your income until you reach retirement age. It is extremely important for those that are self employed. The problem though is that it is very difficult for farmers to be covered and if you are, it will cost quite an amount.
Neal explains: “The insurance companies have different occupational classes, rated according to the percentage of accidents in that sector. Farming is an accident-prone profession by nature. Regardless of whether you are a farmer or not, it is the most expensive coverage to get, but if you can get it and afford it, it is the most valuable.” CL
Case study
John and Linda Murphy are both 33 and have bought a new home. While they are taking out the compulsory mortgage cover, they have also decided to look at the rest of their insurance options. They have two children Kate (six) and John Junior (four). John farms and Linda works in marketing. They’re non-smokers.
1 Mortgage protection: the best rate for this compulsory requirement on a mortgage of €240,000 over 25 years is €20.55 per month with Zurich Life.
2 Life insurance: while the above quote just covers the mortgage, John and Linda are looking for a more inclusive life insurance package. But how much cover should be in place? A number of factors can be considered when establishing the amount of cover needed:
• Loss of net income of the deceased spouse.• Removing the need to pay a mortgage from the equation.• The cost of education all the way through to third level.• Other debts, ie car loans.Example
Loss of net income from primary earner, €25,000/annum. Mortgage repayments of €1,350/month and 18 years until the youngest child completes college.
Net income: €25,000 Minus the mortage cost: €16,200/annum Net annual requirement: €8,800 Estimate third level costs: €60,000 (two children for four years) That equals: €8,800 x 18, plus €60,000 Amount of cover = €218,400 Cost of cover: €26.13/monthStatistically, you are more likely to contract a serious illness and recover, so it is always advisable to include some serious illness cover. On an accelerated basis, with serious illness cover of €218,400, the cost would increase to €109.03/month.
3 Section 785 cover (pension term assurance): The most tax efficient method of providing the above life cover for a farmer is through pension term assurance, where the client will receive tax relief on the premiums paid.
4 Income protection: This has always been a difficult cover to obtain for farmers and only a few companies will consider this. The cost of cover falls under the following terms:
• Male non-smoker.• 33-years-old.• Class 4 occupation.• Retirement age of 65.• Deferred payment of 26 Week.Total cost: €140.14/month.
For more information, log on to www.thomondam.com
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