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 most common questions I get asked most about life assurance is how much cover do we need, how many years do we need it for and how can we save money purchasing such products??

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) 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 knows 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 leads 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.

 

How to save money

On the life assurance, mortgage protection and serious illness front we have seen premiums fall.

In normal circumstances a person who took out a policy such as life assurance or mortgage protection a year or even a few years ago wouldn’t expect to be able to obtain the same level of benefits cheaper today than when they bought them but, a number of factors have combined recently to make this an excellent opportunity to review what you are paying for these types of policies and to save money.

Insurers and banks are always looking for new business but on the other hand they want to protect the business they already have.

For this reason you won’t find many insurers or banks going out of their way to tell you they have cheaper products so it is really up to you and more than likely your efforts will be rewarded.

Twenty Money saving tips:

1.      Check the type of policy you already have. Some are more expensive than others. Term Assurance is the cheapest form of life cover.

2.      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.

3.      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.      Compare prices on the Internet. If you Google ‘Life Assurance’ and ‘Mortgage Protection’ you’ll be off to a good start.

6.      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.

7.      Currently the most competitive providers for term assurance tend to be Zurich, Caledonian Life and Irish Life.

8.      Many insurers have special offers – but only if you ask!

9.      Some insurers operate what is called a price pledge. This means they will match a competitor on price to give you a cheaper premium.

10.  Some brokers will give up some or all of their commission to give you a cheaper premium.

11.  More insurers have special offers but not all brokers have them all of the time. For example Zurich will give an extra 5 to 10% off a monthly premium and they may throw in free cancer cover of €10,000 for just a cent extra. Caledonian Life may offer an extra 5% off their premiums for qualifying cases (most customers)

12.   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.

13.   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.

14.   Over 50’s cover may be ideal for persons who have a medical condition that otherwise makes them uninsurable.

15.   Two of the best financial and information web sites I’d have no hesitation to recommend are www.askaboutmoney.com and www.nca.ie. Go to the ‘Your money’ section.

16.   If an adviser recommends you to purchase a whole of life policy then beware there are guaranteed and non guaranteed products out there. Non guaranteed policies should be avoided as they are subject to review and in future years the premiums you pay can be increased or the cover reduced. They have received bad press because they tend to bomb out in later years and become unaffordable leading to people to cancel them before a claim is paid. Guaranteed whole of life policies are a different proposition and Aviva and Zurich would be considered market leaders in the field by many brokers.

17.   If you are self employed consider a life assurance product called ‘Pension Term Assurance’. You can save tax on premiums. For example if you are a 41% rate tax payer and your monthly premium is €20.85 you’ll save €8.55 a month on tax so the policy will only cost you €12.30 a month.

18.  With your life assurance policy you can purchase an add-on called a conversion option. This is a very valuable benefit which could save you a fortune if you need another policy in later years and your health has suffered.  In fact I’d go so far as to say don’t buy a life assurance policy without it.

19.   If you have decided you need serious illness cover but find it too expensive then some insurance companies will offer Cancer cover only policies. They are cheaper and in 2011, 81% of Zurich Life’s female and 61% of male serious illness claims were cancer claims.

20.  If you need financial advice consider going to an independent broker who deals with the widest range of insurers possible. A broker or adviser who deals with one or a limited range of providers may not be in a position to get you the best deal.

 

John Geraghty is director of online discount brokers LABrokers.ie

 

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