Attitude to Risk - not just for investments

"Attitude to risk" is a term often used to describe an investors sentiment to risk/volatility when choosing investments to reach their savings goal. Every person has a different attitude towards risk when it comes to financial gains or losses and there are varied reasons why each person may be uniquely suited to a specific strategy. In general, though, people tend not to associate risk with deciding on life assurance and serious illness cover.

Just as attitude to risk in investments is based on a persons’ individual circumstance, so too is choosing the right amount of life and illness cover. The usual type of questions you get from an investments perspective is “how would you rate the degree of risk you are willing to take in your financial affairs? The optional answers range from “Extremely low risk to “Extremely high risk”. People generally understand that when the value of their investment/pension goes down a lot it may have a significant impact on their lives if it doesn’t recover.

The same question can apply to a person’s health. If you consider your investment value/pot the same thing as your Body/Mind, the financial impact to a loss of either body/mind can be equally damaging. Part of the difference appears to be that most people really do not believe they will ever become unwell or die, the thinking being that this only happens to other people.

I regularly meet with people to do financial reviews with savings into a pension or growing their money as their priority. Quite often they do not consider life, illness or salary protection important, particularly if they are in good health (which ironically is usually the best time to take out these covers). It doesn’t actually matter if you value these covers or not, what matters is what your honest answer is to the question “If I or my partner died or was unable to work for a prolonged period of time, how would our family cope financially?”. If the honest answer is that you would struggle, then the next question has to be “Why would I not review my cover to see if I can protect our family?”.

I was quite shocked recently hearing news of three different people I know, to have suffered either the death of their partners (in their 40s) and one with a terminal illness diagnosis. A sombre but important reminder that we are all vulnerable to illness and death at every stage of our lives.

Whole of Life Insurance… does what is says on the tin!

Whole of Life Cover is a life assurance policy that lasts for a whole lifetime and is not limited to a specific term.

What are the benefits of this type of policy?

If you pass away this policy will provide a cash lump sum payment to your family. This can be used to cover funeral expenses or for settling outstanding debts. In the event of a definite terminal illness diagnosis, the full life cover payment can be made straight away to the policy owner to help with ongoing bills and expenses.

It can also provide tax-efficient inheritance planning cover for your family once it is set up as a ‘Section 72’ life policy. They may be liable for inheritance tax which can be a massive burden at an already difficult time. Inheritance tax is payable to the Revenue Commissioners when the value of the assets inherited is higher than a certain threshold. Depending on the assets being inherited, they may need to borrow money or sell a part of their inheritance in order to cover a potential tax bill.

There are optional benefits that can be chosen when setting up the policy which are dependent on the provider you choose. For example, Royal London provide an option to include a Life Changes feature which means if you stop paying premiums after your policy has been in place for at least 16 years, you can receive a cash amount back or have a guaranteed amount of life cover remaining for the rest of your life.

How do I set up a policy?

Whole of Life cover can be taken out by anyone aged between 18 to 74 years and the cover is for the rest of their life. A financial advisor can help you determine the level of cover you need depending on your circumstances and your dependents. Once the application is accepted, you then pay a set amount on a regular basis which is usually guaranteed never to increase (unless you choose inflation protection/indexation as an additional option).

When you are considering the cover you need, you should take account of

• any other loans and bills

• the income your family will need to live on

• any funeral expenses

• any inheritance tax bill that may arise when you die

A sample quotation for a non-smoking couple aged 43 and 44, for Dual Life Cover of €30,000 each (including the Life Changes option as above, without indexation) works out at €66.51 per month.

(Quote as of May 2022)

Cashflow Planning

The heading makes the task sound a bit boring, and slightly business-like… but the actuality of this term is something we all do in everyday life! Each month, most of us will have bills to pay, maybe a mortgage/rent, household utilities, insurance…followed by food/clothing bills, savings and hopefully some funds to put aside for a social life or something nice to enjoy as a reward for our hard work. This short-term planning is an important and smart habit to have and can help us be prepared for any unexpected bills or events that may occur along the way.

A secure online financial planning system we use for creating financial reviews can help with the long-term cashflow planning. It allows safe access to a portal where you input your expenditure/liabilities, savings/income and most importantly, your objectives now and further into the future. The more information you can input, the clearer the picture can be for your financial adviser and the more accurate the recommendation. It helps to highlight any areas where you may need to perhaps direct funds towards protecting yourself and your family or maybe towards saving for big life events such as starting a family, college fees, buying a property or preparing for life in retirement, to give some examples. Or maybe you have a dream of cruising around the world and want to figure out how you can make it happen!

Although this system helps identify the areas you need to focus on and it is planning for the long-term, nothing is ever set in stone and life can change in a heartbeat. The results and graphs can show you various scenarios throughout your life and the impact they may have on your finances.

Once we provide the results and recommendation, it is up to you to decide on the next step. As life can be ever-changing and unpredictable at times, we feel it is important to review your cashflow status every one to two years or should your circumstances change. So, as you have your monthly planning habits, an annual check-in on your cashflow plan will help give you peace of mind knowing you are using your money wisely and as best you can to achieve your goals.

Apart from mapping out a financial plan for the future, it is also a good opportunity to review any existing life policies or pensions you may have. Once you give signed instruction to a provider, your adviser can contact the life and pension companies on your behalf for further policy details. If you would like to see more information on cashflow planning, just visit www.drumgoolebrokerage.ie/planning.

Did you know....?

Did you know... Multi-Claim Protection can pay out multiple times for different illnesses over the lifetime of the policy and it can also trigger multiple claim components for one illness.

Did you know... Life insurance pays out a lump sum if you die or suffer a critical illness (depending on the type of cover you hold). Death in service is similar. Death in service may be offered by companies as part of an employee’s benefits package. It’s paid out as a tax-free lump sum if you’re employed by the company (i.e. on the payroll) at the time of your death.

Did you know... When you apply for life insurance, you may be asked to complete a medical exam and the life company will pay for this medical exam. It might be a good opportunity to avail of a complimentary check up!

Did you know... Key Person Insurance is a business-specific life insurance (also known as Business Protection) which can compensate a company for the financial loss and other consequences of the death or serious illness diagnosis of a key member of the business.

Did you know...  Income Protection policies and some Life Assurance policies allow you to claim tax relief at either standard tax rate (20% or 40%). This means if you are paying €100 monthly, you may get as much as much as €40 refunded on this premium

Did you know... When structuring life assurance for cohabiting clients and their family, it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act. By setting up an individual Life Assurance policy on the other person (i.e. Life of Another) with the premiums being paid from their individual bank accounts, this can help avoid a potential inheritance tax bill.

Did you know... If you are self-employed, Shareholder/Directorship Protection is an arrangement between company directors, which allows for a deceased’s directors share of a company to be bought by the remaining Directors.

Did you know... by reviewing your Mortgage Protection policy, you may be able to obtain more cover and additional benefits for the same or reduced price than with your original policy.

Did you know... the application process has become a much easier process these days with the availability of editable PDFs and Docusign …one pro to come out of the current situation!

Did you know... For any change in lifestyle (e.g. New house, starting a family) it is a good practise to review your financial needs and check if you are fully covered or to see where you may require additional protection.

€100 For Cover That May Only Cost €70???

Our new financial planning system has been hugely successful and popular in assisting clients with setting budgets and plans in place for their future. We try to get people to visualise what they would like to have as a goal, whether it is to pay off a mortgage early, retire early, travel the world or simply provide for family later in life.

Another handy way it can help is to configure whether a person has enough protection in place. Whether it is mortgage protection when purchasing a home or perhaps income protection for a self-employed person, the first question we ask is …how much have you got to spend? This is a great starting point as we can then provide various quotes to accommodate this figure without going over budget before we have even begun!

The following is an example of a quote for Joe Bloggs who is a married, 35-year-old, non-smoker who told us that he has €100 as a monthly budget for his protection needs. In his case, the three main areas he wanted to review was protection for his income, life cover for his family and specified illness cover.

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After we provided Joe with these quotations, we were able to inform him that he can claim tax relief on €75 of this cover at his standard tax rate (20% or 40%). This meant that he could save €15 to €30 a month bringing the total cost (€100) of the cover down to as little as €70 per month.

Family Protection for Cohabiting Couples

When structuring life assurance for cohabiting clients and their family, it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act.

So, if you are cohabiting and have no Will in place, the proceeds of a life assurance policy could end up in the hands of the deceased’s ‘next of kin’, their parents or even their brothers and sisters, if the arrangement is not structured correctly.

With the possible exception of the family home, the total value of all assets passing between two people who are not married or civil partners, are liable to Inheritance and Gift Tax, regardless of how long the couple are living together. This includes the value of any life assurance benefits.

If the beneficiary did not pay the premiums, or if the beneficiary is not the legal spouse or registered civil partner of the person who paid the premiums, the plan proceeds will be liable to Inheritance Tax.

From a tax perspective ‘partners’ are treated as ‘strangers’ for Inheritance Tax purposes with a threshold of only €16,250 (currently) tax-free. The balance is currently taxed at 33%. Where there are children of the current or a previous relationship there can be confusion over who the proceeds of the life assurance contract will be paid to, as well as how the proceeds will be taxed.

For example, a new client recently asked me to set up a Life Assurance policy for her protection needs. This client is not married to her partner, but they have one child. They had initially received (bad) advice to set up a dual life Term Assurance plan along with their joint life Mortgage Protection plan.

In this instance, I recommended they each set up an individual Life Assurance policy on the other person (i.e. Life of Another) with the premiums being paid from their individual bank accounts. It may be slightly more expensive than a joint/dual policy, but they will potentially avoid a future tax bill of 33% as described above.

In the event of death, who will receive the plan proceeds?

The sum assured will automatically be paid to the policy owner in the event of the death of a partner. If both were to die during the term of the plans, the proceeds will go to the estate. In the case of my client, she will leave the entire estate to their son.

Start Protecting Your Child’s Future

Ever since your children entered the world, you’ve done everything you can to protect them, giving them endless love and attention.

But what about protecting your little ones’ financial futures? As a good friend quoted, ‘the days are long but the years are short’. So the earlier you start taking steps to securing a happy financial future for your kids, the better.

Life insurance

If life insurance has never been a priority, now that you have a family, it could be the ideal time to make it one. Having cover in place will help protect your loved ones if something were to happen and they were no longer able to rely on your income.

Similar to other types of cover, you can tailor your life insurance to suit your needs, choosing from different levels and a range of optional extras.

For instance, critical illness cover can be added to your policy so that if you were diagnosed with an illness covered by the plan, you will receive a cash sum. This money can help to relieve the financial worries associated with critical illnesses, covering time spent off work, ensuring you can still pay household bills, and funding specialist treatment.

And what would happen if you were forced to take a prolonged period of time off work? Adding income protection to your life insurance policy would replace some of your earnings if you can’t work.

Make a will

Not the most pleasant task – but if anything were to happen to you, you want to be certain your family is provided for and cared for by the people you would choose.

You can either write a will yourself, hire a solicitor or use a will-writing service; make sure you research each option thoroughly before deciding, as they all have pros and potential drawbacks.

Part of the process involves you appointing an executor, who will be responsible for carrying out the instructions left in your will. Executors need to be aged over 18 and can be listed in your will, so it could be your spouse or family member.

Savings options

Driving lessons, college, weddings may all seem like a world away, but planning how to build a savings pot to help fund your children’s future will give you a head start.

With the aid of our new financial planning tool we can highlight how best to use your money in order to plan for you and your family’s future. This tool processes all your incomings and outgoings to give a clear picture of where you stand financially, guiding you to make the correct decisions.