Do I have enough Life Assurance cover?

It is understood that if you plan to purchase a property in Ireland, you will be required to have a Mortgage Protection policy in place. This policy is used to pay back the mortgage loan amount in the event of death.

Is Mortgage Protection enough life cover? Depending on your age and whether you have a family or dependents, then no, Mortgage Protection alone is regularly not enough.

Why would I need more Life Assurance cover? A salary coming into a household is used for bills, loans, savings, and other big life events. If this salary ceases in the event of death, a replacement will be needed to cover the shortfall. If you have a young family, you will need more cover as you will need any benefits to last for a longer time.

How much is enough? We tend to avoid thinking about losing our loved ones, let alone the financial consequences. There is more than one way to work out how much life cover you might need. A basic starting point is to multiply your gross salary or your household annual expenses by a factor of eight.

The following Dual Life Assurance quotations are an example of the cost for a couple who are non-smokers and with the option of conversion (this allows you to convert your policy before the term ends to a new policy without the need to provide medical evidence).

The term is for 10 years, and the cover is €250,000. The premiums below cover both lives and is dual cover (meaning the amount of €250,000 will be paid out for each individual life in the event of death).

Sample quotes December 2023

You may require less Life Assurance cover in the case where; your dependents are financially independent, you have death-in-service benefit through your job, you have substantial savings, or you have investments or a property which could provide an income or be sold.

It is beneficial to know that at various times throughout the year, life companies can offer special discounts on premiums to brokers. For example, one company is currently offering 6 months cashback on certain new protection policies.

Life assurance that continues when you stop paying premiums….

I wrote a piece last year about “Whole of Life Assurance”. There are different benefits available, but the maturity of two of my clients’ policies prompted me to write about it this month.

Both sets of clients took the policies out circa 12 years ago, but one client recently phoned me to ask “do we really continue to have life assurance now that we have finished paying the premium?”. It sounded too good to be true to him and I was able to say, “yes you do”.

So, what was the policy? Our clients were aged 54 and 57 when they set up this plan originally (they are now 66 and 69). The cost of the policy was €202 per month at the time with a term of 12 years. The total premiums they have paid during this term is €29,142.

During the 12-year term of the plan, they each had €50,000 life cover. Now that the term is complete, they stop paying the premium, but they both continue to have €25,000 life cover each for the rest of their lives. In short, these policies will now cover any future funeral expenses and they will not have to put other funds aside to cover this situation. They just keep the policy documents somewhere safe until needed.

This is a really popular life assurance plan for people to use, particularly to pay for while in employment and be able to just put it aside at retirement knowing you are covered. Many people wonder how or why would a life company offer such a deal? Premiums of €29,142 for €50,000 guaranteed life cover?

There are two major factors as to why life companies can offer such a deal. One is that there is a significant amount of people who will cancel the policy before the term is up. Once you take out a plan like this you really should try to complete the term on the plan. The second reason is because the company has already factored in that most of us will live to our mid 80s and at that stage inflation will have reduced the actual cost for them to pay out the claim.

I have been receiving more queries about different types of life cover, but these policies maturing gave me great satisfaction to see my clients very happy with the outcome. I know some people say “life cover is dead money” for different reasons, particularly as most life cover policies require you to keep paying premiums until you die. This policy is a good alternative to consider.

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.