Business

Dump whole-of-life cover before crippling cost kicks in

Niall Brady

7 February 2016

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JM writes from Dublin: I am 43 and pay €77 a month for a Total Care insurance policy with New Ireland, which provides life cover of €465,400 and critical illness cover of €155,100. This seems expensive compared with other life insurance policies I have. Am I paying too much? I bought the policy in 2006 through an insurance broker with cover to last for 99 years.

You were 33 when you bought the policy, which will cover you until you are 132. This means your children or their children are guaranteed to collect €465,400 on the basis that you are likely to expire long before the cover does. All you have to do is keep paying the premiums while still alive. This is a big ask. As you grow older and the likelihood of a €465,400 payout draws closer, New Ireland will increase the premiums to reflect the greater risk. The chances are the premiums will eventually become unaffordable, forcing you to abandon cover at some stage in the future. If you think €77 a month is expensive, wait until you see how the cost will rise in the years to come. This so-called whole-of-life cover is a regular cause of dispute between insurance companies and their customers, who feel cheated as the premiums are priced out of their reach.

More than 700 complaints about whole-of-life insurance have been thrown out by the Financial Services Ombudsman since 2011 because they were received outside of his six-year deadline for submitting complaints.

I asked John Geraghty of LABrokers.ie, an online discount broker, to take a closer look at your policy. He wondered why the question about whether you smoke is answered unknown. If you do not smoke, you are paying way too much for insurance if you are classed as a smoker. “The first question I’d ask is why your reader choose, or why was he sold, a whole-of-life policy?” Geraghty said. “Somebody with a young family, for example, probably wouldn’t need much more than a 20-year policy with a conversion option to extend cover after that.” When your children are old enough to earn a living you may no longer need life cover because, at that stage, your death would not affect them financially. 

Geraghty could get you a policy with the same amount of life cover for the next 10 years at €89.60 a month, for 15 years at €110.80 a month or 20 years for €130.66 a month. While this is more than you pay with the current policy, the premiums are guaranteed not to change. “Rather than waiting for the inevitable premium reviews to kick in with the whole-of-life policy, I’d request a meeting with the person who sold the product so they could refresh your reader’s memory about why it was recommended and what alternatives were considered at the time,” he said. “Your reader is currently paying an attractive €77 a month but it won’t always be so. Better for him to act sooner rather than later.”

Your policy has some features that could be valuable, however, including the option to increase the amount of cover in certain circumstances. “An example would be if you could increase cover by €100,000 if you are taking out a mortgage,” said Geraghty. “I have come across many people for whom this option was valuable especially those who have suffered a serious illness and are uninsurable. It might only be an additional €100,000 of cover but it can make all the difference for small mortgages such as home improvements for example.”

As well as life cover, your whole-of-life policy would pay €155,100 if you were diagnosed with one of the illnesses it covers. “Specified illness is an apt word as your reader would have to get the illness in precisely the way described in the policy terms and conditions for a claim to be valid,” Geraghty said.

© Times Newspapers Limited 2016