Th 10 June 2010

Protecting your family with cost effective Life Assurance.

We all want to do the very best for our family and to make sure that we can provide them with financial security. But what would happen to your family’s finances if you were to die? It's certainly not a comfortable thought, or one that any of us like to dwell on for too long.

If you have a young family then the financial turmoil created by a sudden death of a parent can be devastating.

Twenty one per cent of us in Ireland die from heart disease and it takes us on average 16 years younger than the normal life expectancy which for a male is 77 and for a female 82. The probability of dying between 16 and 60 years of age for a male is 88 per 1000 people and 56 per 1000 people for a female.

The two questions I get asked most about life assurance is how much cover do we need and how many years do we need it for?

How much cover

Things to consider in deciding what level of cover you may need will include for example the number of dependants, whether there is a second earner and the level of cover they require, the level of cover required for a partner working in the home, the cost of providing for childcare as well as any long term borrowings or loans.

There are two ways to judge how much life assurance you may need.

The first way is to calculate the replacement income your family would require in the event of either parents death. Using this method, the replacement income you would need dictates the level of cover you may require to meet future needs and expectations which in turn dictates the level of premium you would have to pay.

Weekly replacement income

Amount of life assurance required

€100

€230,000

€150

€315,000

€200

€460,000

€250

€570,000

€300

€690,000

€350

€800,000

The illustrated capital sums are calculated assuming the money is deposited earning 3% with the interest credited half-yearly, DIRT is paid half-yearly and. the weekly income is payable continuously without erosion of the capital sum.

Remember, to allow for possible additional payments (such as pensions or social welfare payments) will may be available in the event of your death, you should take this into account when calculating the amount of your income you need to cover.

The second method is quite simple in that knowing the ideal level of cover you need you simply purchase as much cover as you can comfortably afford for a given monthly outlay.

How many years do you need cover for?

If you have a young family or plan to have more children, you may need life cover until your youngest child has left school or college.

Protection needs are individual and they vary widely from one person to another.
For example, if you have a family then the need to protect your children against a sudden loss of income should cease when they become financially independent. Some children leave school at 16 whilst others will continue with full time education until well into their 20's. You will have to make a realistic assessment of the length of time for which you will need protection

This could mean a term of 20 to 25 years. Do not waste money buying cover for a term which is longer than you need. Money saved could be put to better use.

Claims experience

As an insurance broker I deal with a few claims every week. A simple tip I’d give to those who already have life assurance is to ensure your family knows what cover you have. I’d suggest drafting a page you keep on file safe, which outlines your policy details and contact details so if the worst was to happen your family know who to contact.

I’ve had cases where many months later a surviving partner has discovered by chance a direct debit or a piece of paper which lead them to realise a policy was in place. Some policies are renewed on an annual basis and can be difficult to spot especially if paid by direct debit so always ensure the insurer has the correct address and contact details for you.

When an insured person dies the family receive a cheque from the insurance company. Out of this cheque they usually pay immediate expenses and the remainder is invested. It is this investment which provides the replacement income and carries the family through until the children become self supporting.

Life cover has never been cheaper so it is an opportune time for people to review their life cover needs so that if the worst should happen, they will at least have provided adequately for their dependents.

John Geraghty is director of online discount brokers LABrokers.ie

PANEL

How to pay less for your life cover.

1. Check the type of policy you already have. Some are more expensive than others. Term Assurance is the cheapest form of life cover. Better to have adequate cover than not enough.

2. Give up smoking. You’ll save hundreds over the life time of the policy and according to actuarial mortality tables you’ll live on average 5 years longer.

3. Don’t buy a policy for a term of years that is more than you need it for. For example if your youngest child is 3 don’t buy a 30 year policy but instead buy a 20 year one.

4. Don’t buy policies with unnecessary add-ons. Many are of dubious value for money as it can be difficult to qualify making a valid claim.

5. Currently the most competitive providers for term assurance tend to be Zurich, Caledonian and Friends First.

  1. Don’t fall into the trap of buying too much life assurance. You only need enough cover to replace income.
  2. Should you choose to add an inflation option to your policy be careful, not all companies charge the same. Compare the total cost of premiums paid over the full term of the policy to see which company is offering you real value.