Why do you need life cover?
One of the certainties in life is that we will all die. Most of us believe that we will all live well into our retirement, however, if you die prematurely this could have serious implications for your dependents and your business.
Potentially it can mean a significant and sudden reduction in their financial wellbeing because
- Your income will cease
- Debts and loans may become repayable.
- Inheritance Tax could arise for your dependants, depending on what and how much they inherit from you.
However, you may have death in service benefits from your employer & Social Welfare benefits may be payable on your death – such as the widows / widowers / surviving civil partner’s pension. These benefits will not replace the emotional loss of a loved one, however, you can significantly reduce the potential financial loss by efficiently structuring life cover.
Let us help you quantify how much you will need and tailor a life cover programme that fits your budget.
How much life cover do I need?
Have you and your partner recently had a new baby or have young children at school?
If so, then you definitely should consider protecting the financial welfare of your dependents.
This does not need to cost a large amount and life cover can be sourced from as little as €10 per month.
Normally, we recommend that younger parents have more cover than older ones. Every family is different and we will take care to ensure that your plan suits your budget and your needs.
Top tips :-
- Ensure life cover or death benefit payable up until youngest child aged 21 (potentially finished college)
- Add in additional cover to clear all loans (car and personal) / credit cards Clear any loans
- Your mortgage protection insurance will cover your mortgage repayments and here may be a surplus payable here if the sum assured is greater than the outstanding mortgage
- Are there any large costs planned for the future – e.g. educational costs
- Your need for life cover may be reduced if
- You have no dependants or children have now grown up and are now financially independent.
- You are a member of employer death-in-service benefits through your job or pension plan.
- Have sufficient savings or property investments that will provide a substantial income in the event of death.
Selecting the right level of life cover needs to be balanced between how much you need and how much you are prepared to pay. We can help guide you to making the right decision for you and your circumstances.
Types of life cover policies and choices.
There are many different ways to structure your life cover.
The policy can be mortgage protection/decreasing term, level term – dual, joint first death or joint second death or whole of life. Life cover can even be structured to benefit from tax relief. When comparing prices then it is vital to ensure you are comparing like with like.
There are many optional extras or “rider benefits” that can be added to your policy – some will increase the cost.
Some terms that may help you making a better decision:-
Single life assurance: Life cover policy where life assured is one person only. Life cover payable to beneficary.
Joint life first death life assurance: Benefit payable on the death of the first individual during the policy term. On first death policy ceases.
Joint life second death life assurance: Benefit is payable on the death of the second individual during the policy term. On death of the second life the policy cease
Dual life insurance: Pays out a fixed sum assured on the death of both sum assureds. On death of the first policy owner policy will pay out and continue until death of second life assured.
Term life insurance: Pays out a fixed amount of life cover to the second person named on the life policy or other beneficiary in the unlikely event of death before the end of the policy term.
Whole of life insurance: Pays a fixed amount of life cover to the second person named on the life policy or other beneficiary in the unlikely event of death whilst the policy is in force. The policy will remain in force so long as premiums are paid up to date – for the whole of your lifetime. The policy will cease if premiums are not paid. This type of cover can be more expensive than term assurance and premium review dates – at year 10, 15, 20 etc – can see significant increases in costs.
If you have a “Whole of Life” policy review you will have importnat decisions whether to pay the new increased premium or reduce your benefits – please contact us if you need advice.
Traditional Whole of Life policies also had an investment element, whereby a portion of the funds are invested into life assurance investment funds and your policy may have built up a significant value.
Conversion option: Extra added benefit that allows you to extend the policy term beyond the original term selected. This can be done WITHOUT the need to provide further medical evidence and regardless of your state of health at that time. If your health quality reduces after you have effected a policy with a conversion option this benefit ensures that you can continue your cover.
Some providers have a conversion option that can be converted only at the end of the term. Others allow the policy to be converted at any time and as many times as required.
Indexation: Whilst inflation rates are currently low there is no guarantee that this will remain the case. You have the option to build in an indexation benefit to allow the benefits increase annually in line with a fixed percentage per annum e.g. 3% per annum, 5% per annum or 7.5% per annum. It is important to note that some providers will have the premium increase rate at a higher rate that the inflation rate.
Income on death benefit: Rather than a fixed lump sum payment you may decide to receive a monthly benefit payable to your dependents instead. This benefit can be set up in conjunction with a fixed payment lump sum
Specified serious illness insurance: You can set up a stand alone specified serious illness policy AND it is possible to combine life cover. This type of cover pays a fixed tax free lump sum if you are diagnosed with one the many defined specified serious illnesses.
Contracts between life assurance companies vary considerably.
Is tax relief available?
Life cover benefits paid to a spouse is currently tax free. However, benefits payable to other individuals may be taxable once above a certain level. The premiums payable are not normally allowable for tax relief.
However, pension term assurance is eligible for tax relief. This type of policy CANNOT be written on a dual or joint basis and the life cover cannot be assigned.
We can structure your plan to maximise the need for immediate tax free pay out and also ensuring that premiums benefit from tax relief.
Underwriting requirements and need for medicals.
If you are applying for life cover you will have to answer questions based upon personal details, health and personal lifestyle before the cover is put in place.
A life assurance company reserves the right to request additional medical information from you or your medical health provider. In some instances where the cover exceeds a particular amount you may be asked to attend for a medical – it is possible for this to be completed in most circumstances with your own GP.
NON DISCLOSURE: It is important to complete the application form / tele-interview correctly and honestly. If you fail to disclose a “Material Fact “, a fact that could influence the pricing or acceptance of your life cover at the time the policy is underwritten, then your policy could be deemed void on your death. If in a doubt disclose the information and let the life assurance company decide if it is relevant.
Income / Salary Protection
Your income is your most valuable asset, governing how you and your family live – both now and into retirement.
We all have to insure our property and our cars and maybe decide to insure our phones, however, our most important asset is the ability that we have to go to work and earn money.
If you were involved in a serious accident or prolonged illness this may seriously effect your ability to work and earn an income.
If your employer does not have a sick pay scheme you could face a large drop in income for a prolonged period of time. Even if there is a sick pay scheme in place this may only offer a short term protection against income loss.
The Social Welfare Illness Benefit / Invalidity Pension may replace part of this lost income, however, you may not be eligible. Even if you are eligible this benefit will only secure €9,667 per annum.
We can secure up to 75% of your salary less Social Welfare Disability (if eligible) , however, you may decide that a less income is all that needs to be protected.
Everyone is different and we can help you ensure you get the best plan for you.
TAX RELIEF is available and can reduce the cost of this contact by up to 41% per month.
How does your salary protection plan work?
Income protection provides you with a regular taxable income in the event that your are unable to work due to accident or illness.
Income protection is available if you are in full-time employment or the self-employed.
Some occupations involving manual work are likely to be charged more for the same cover than someone in a lower risk occupation. Some occupations won’t be eligible for income protection.
It protects you if you are out of work for long periods due to illness or disability – you can choose 8 weeks , 13 weeks, 24 weeks or 52 weeks.
The cover pays out if you are out of work for longer than a period referred to as the “deferred period”, which typically ranges from 8 to 52 weeks.
The cover normally pays out this benefit after the deferred period while you continue to meet the conditions of payment. However, the benefit will cease when :
- Your insurer determines you are fit to return work. Some providers may pay out a proportional benefit if you return to work on reduced hours
- You return to work.
- The policy is due to expire between 55 and 65. Sometimes we meet customers who have selected an earlier age because the cost is cheaper, however, it is important to note that if you wish to extend cover you will have to be re underwritten.
Please note that Income/salary protection schemes do not cover you in the event of being made redundant.
There are redundancy policies available and certain conditions need to be met.
What factors do I need to consider before I start my salary protection plan ?
The monthly cost will depend on a number of key things:-
- Your age.
- Your occupation.
- What age you want the cover to run until 55,60, 65 ?
- When you want the cover to start – 8 weeks, 13 weeks, 26 weeks and 52 weeks?
- Your general health
- Are you are a smoker?
- The amount of cover that you need.
- Do you want the cover to increase in value each year?
- Do you want the cover to increase in value if a claim arises?
Is tax relief available on my Salary Protection Plan?
Yes, premiums are deductible for income tax against your earnings at your marginal rate up to a maximum of 10% of your total income.
For example, for a 41% tax payer then every €100.00 of premium cost will only cost you €59.00
You may have to make a claim to Revenue directly to claim tax relief and we can help with this.
Income / Salary protection OR Specified Serious Illness Cover?
Serious illness cover pays a tax free lump sum on the diagnosis of a specified serious illness in the policy.
Alternatively, Income protection pays a fixed taxable percentage of your income after the deferred period up to your return to work if you are prevented from working due to accident or illness.
It is possible to structure your protection benefits with a combination of specified serious illness or income protection.
Some questions to consider :-
- What income do you consider to be critical for payment of mortgage and personal loans?
- Do you have health insurance?
- Do you have a lump sum saved?
- Does your employer have a an income protection scheme in place for employees – are you a member and do you know your exact benefits?
- Some conditions such as depression and anxiety are not protected by a specified serious illness contract – therefore, this policy may not totally protect you.
- Your personal medical history and family history can sometimes highlight any potential long term risks.
- It may not always be possible to secure cover and we always advocate that it is better to start your cover as early as possible.
Please note that the policy conditions for specified serious illness and income/salary protection schemes vary considerably between different providers.
Serious Illness premiums are not tax deductible, however, benefit is paid tax free. Income protection benefits are tax deductible and the benefit is taxable as PAYE income.
Specified Serious Illness Cover.
Unfortunately, the risk of suffering from a specified serious illness during our life time is high. This risk to our financial wellbeing during our working career can be protected against.
Cancer, heart attack and stroke are the leading specified serious illnesses and would all potentially have a big impact on your life – physically, emotionally and financially – for you and your dependants.
Some cancer treatments can result in treatments that may mean you have to take time off work whilst recovering.
The potential drop income will impact on your ability to meet critical financial outgoings – mortgage(s), house hold expenditures, medical expenditures and loans.
Your employer may have a sick pay scheme in place, however, its duration may be short term.
Not all specified serious illness contracts are the same – the definitions that each company has in their underlying specified serious illness policy do vary. Some companies do offer partial payments for conditions that they do not offer full cover for.
Some terms that may be of use to you:
Policy conditions vary considerably between providers and we have access to the leading providers of life cover, salary protection and specified serious illness cover.
Specified serious illness cover can protect in excess of 35 illnesses depending upon contract chosen – they also sometimes have automatic benefits included.
Surgery Benefit: Some serious illness policies pay out a certain amount if you are diagnosed as requiring certain serious surgery such as coronary artery bypass, graft or heart-valve replacement or repair surgery.
This immediate payment can help you to get immediate medical care and give you more options about when and where to have the surgery carried out.
Children’s Cover: Some serious illness policies also automatically cover your children for a limited amount, such as €15,000, should they be unfortunate enough to suffer from certain serious illness covered by the policy – cover is for children of a certain age only.
Cancer only cover: This type of cover only provides a lump sum payment if you are diagnosed with a type of cancer that fits into the definition laid down in the policy conditions. This policy does not cover other types of specified serious illnesses and as a result may be cheaper.