You’ve worked for your money, make sure your money is working for you!

Although I believe commissions will remain part of the process on one level, I have been working on a new financial planning service which I will be offering to new clients over the coming months. Many existing clients have found this a very useful and concise tool in setting out a clear plan for their future. I believe this is a prudent exercise, wanting to know how our future will look and getting the most from our money.

Do you ever imagine what you would like to do in retirement or when your mortgage is paid off or even to retire earlier than you thought?

Some questions and comments I regularly hear when I meet people for the first time are:

• I know I should save into a pension, but can you explain why it’s better than saving into a savings plan?

• What will my pension pay me at retirement?

• I am self-employed, can I protect my income if I am unable to work due to illness or injury?

• I have pensions from a previous employment, can I get access to them on any level or what can I do with them?

• I think I have mortgage cover, but I do not know what it does, can you explain it to me?

• Should I pay more towards my mortgage and if so, what change will it have on my term and interest payments?

• I don’t understand how a life assurance policy payment affects me if my partner dies.

• What is the difference between Leaving Service Options and Retirement Options?

Should a person wish to avail of this financial planning service, it involves a simple 3-step process:

1. You will receive a link to a budget planner where you fill in your personal and financial details. This is a comprehensive budget and will take up to an hour to complete.

2. You submit the planner and I review and prepare recommendations and advice.

3. We meet to discuss the results of your budget, your priorities and how you can better manage your money from a savings / pension / life assurance perspective.

Following this, you decide what step to take next. Either way this process will at the very least be an education to anybody who has no current strategy for retirement or savings needs.

Unknowingly Underinsured - Restructuring Mortgage Protection

A new study undertaken by a leading life company has found that many families who fell into arrears on their mortgage during the recession may now be underinsured on their mortgage protection policy.

The impact of the recession resulted in around 1 in 8 mortgage holders, at its highest in 2013, falling behind on their payments.

As mortgage protection policies generally cannot be restructured, in most cases a new policy would need to be put in place to reflect the fact that the mortgage isn’t reducing or to match the revised mortgage agreement.

While no one likes to keep considering issues relating to their own or loved ones’ mortality, it’s important that policy owners take the time to reassess if their cover is adequate especially if they have a family with an ongoing need for a home to consider.

The case study looked at a couple who had taken out a €300,000 mortgage for 30 years in 2004, the couple also took out the equivalent amount of mortgage protection.  In 2014 their bank agreed to switch them to interest only for 4 years and they then return to full repayment in 2018. Should either pass away the individual left behind would currently have a payout shortfall of €11,569 – that being the difference between what they owe and what a typical mortgage protection policy would cover.

When the interest only period ends, the lender will re-establish repayments in one of two ways. They may extend the term sufficiently to ensure that if the homeowner resumes the monthly repayments at the original amount the loan will clear, usually after an extra couple of years. Or they can increase the regular repayment amount so that the arrears are repaid over the original mortgage term. Either way, there’s likely to be a shortfall. The higher the repayment, the quicker the shortfall may reduce.

There are a number of situations where mortgage holders in arrears enter into special agreements with their banks where it would be necessary to review or amend the mortgage protection cover in place to avoid any underinsurance. Some options designed to help the homeowner stay in their home are as follows;

1. Interest Only – over one year (probably beyond 2 years) regardless of whether the term is extended or repayments are increased in the remaining years

2. Interest Only – up to one year

3. Reduced Payment (less than interest only)

4. Reduced Payment (greater than interest only)

5. Term Extension

6. Arrears Capitalisation

7. Payment Moratorium

8. Deferred Interest Scheme

9. Split Mortgage

Case Study: “I don’t really know what we have, how can you help and if so, how much will it cost?”

Enquiry:

I received a call from Mary, a potential new client, asking me how I could help her and her husband to understand their current cover and pension provisions. She stated she had a mortgage protection policy but wasn’t sure exactly what this covered. She remembered her partner (Peter) taking out an insurance policy which included some illness cover but didn’t remember exactly why they had the policy. They both had various pensions with different companies and employers and she wanted to see if it would be worthwhile merging them.

Cost:

Mary hadn’t previously used a broker so was a bit apprehensive. “Before we go any further, what is the cost for you to review our policy’s?” I responded with “If you are happy for me to be your broker on these policies, there is no additional cost for you.” Mary: “But how do you get paid?” Me: “In many cases a broker’s fee is included in a policy whether you use a broker or not. You can request a fee-based charge which I can calculate based on work required but this will not reduce the cost of your existing plans.” In short, most people prefer to pay through fees paid direct from the pension/life providers.

Information gathering:

Mary asked me to investigate their policies and I informed her that if both partners simply sign a document entrusting me as her broker, I could obtain all the information required to review her policies. Mary asked if this would change her policies in any way or cost her more money. I reassured her that this just allowed me to discuss her policies with the companies but that it did not authorise me to make any changes or give any instructions that would impact these plans. I emailed this one-page document to Mary and they both signed and returned it to me.

Meeting:

I met with Mary and Peter following my review and was able to outline the exact cover and pension savings they currently held, along with the pro’s/con’s to making changes or leaving in place. They informed me of their priorities and as their children were in their teens there wasn’t a necessity for as much life assurance, so they decided to direct more of their funds towards their pension.

Peter had become a non-smoker, so a cheaper price or more cover for the same cost became available to him. Mary had the option to combine two pension plans, however she was better off moving it into a pension bond in her own name. If she had chosen to combine, she would have lost a tax-free lump sum option that was unavailable in her existing employers pension plan.  

3 things you might not know about Mortgage Protection Insurance

Mortgage Protection Insurance is life assurance cover that will clear your mortgage in the event of your (or your spouse’s) death. While it is obviously very necessary, taking out this cover often comes at a bad time for consumers, who are to the pin of their collars facing a new mortgage and all of the costs associated with a new house. For this reason, it is really important that you get the best (often the cheapest!) cover in place. Here are three points that you may not have known about mortgage protection insurance, that just might help you to get the right policy for you.

You don’t have to take out this policy with your bank. Your bank may arrange your mortgage for you. They may also insist on you having mortgage protection insurance in place as a condition of your loan. That is their right. However they cannot by law insist on you taking out this policy with them and cannot make the loan conditional on you doing so. You retain the right to take out any mortgage protection policy available in the market, once you ensure the required amount of cover is in place.

Now this is really important!

Your bank will usually have access to the policies of a single life assurance company. However your Financial Broker will have access to policies of all of the insurers in the Irish market, making sure that you get the very best / cheapest policy to meet your needs. Your bank must accept this policy.

Your cover does not have to decrease in line with the mortgage

The life assurance cover within traditional mortgage protection policies decreases in line with the outstanding mortgage amount. This is the minimum amount of cover that you must have in place – enough to clear the loan at any stage during the lifetime of the mortgage.

However you can have more cover in place. As part of a wider financial plan developed by your Financial Broker, you might choose to have a level amount of cover that will not fall, possibly for the original mortgage amount. In the event of death, the life cover amount will then be greater than the mortgage due, as some of the mortgage will have been repaid in the meantime. This excess cover is simply then paid to your estate.

There are many other benefits available

One of the benefits of taking out your Mortgage Protection insurance through your Financial Broker is that you can tap in to their knowledge of all of the plans that are available in the market, and access features that might not be available through the policy offered by your bank.

There are many other potential feature and benefits available through different insurers in the Irish market, and some of these features might just be very important to you. So talk to your Financial Broker and get the best policy in place for you!

Mortgage Protection: the Costs v the Benefits

Mortgage protection is often viewed as a grudge purchase. A necessary evil insisted upon by banks when consumers are at the pin of their collars, trying to buy a new home. But is this the right way to look at it? Because of the financial pressure people are under when starting out with a mortgage, they often forget about the benefit that they are actually paying for.

First of all - the Costs
Mortgage protection is actually a cheap form of life assurance. This is because the level of cover reduces in line with your reducing mortgage balance, unlike more traditional life assurance cover that remains constant (or even increases) during the life of the policy. Remember, the purpose of this cover is simply to repay your mortgage in the event of your death. 

There are other reasons behind the cost of this insurance for your life usually being quite low. Mortgage borrowers are often young couples, which in itself results in lower premium rates for them. On top of this, non-smokers see significant reductions in rates in comparison to smokers.

We’ve also seen a significant reduction in premium rates in Irish life assurance policies in recent years. This has been as a result of more favourable claims statistics – less people dying young, due to significant strides in medical science in the last few decades.

Even aside from these factors though, you want to ensure that you are availing of the lowest cost cover in the market! To do this, you need to engage the services of a Financial Broker who will find the best insurance quotes in the market for you. This is a job your bank cannot do – they are stuck with the products of a single provider.

And did you know that your bank cannot insist on you taking out the life assurance policy with them? They can only insist on the cover being in place. So stand up for your rights (and your pocket!) and ensure you get the lowest cost cover in place through your Financial Broker.

The Benefit
Don’t forget the benefit! The primary benefit of mortgage protection cover is the security that it gives you. The comfort of knowing that should you or your spouse die, your family home is secure and is one less worry for the bereaved to deal with.

None of us like to give these situations too much thought… But it is important to consider that in the event of a death in the family, this often results in the loss of an income, sometimes the sole income coming into the household. Then the mortgage repayments become a problem and then the bank is chasing you. All on top of your grief of losing a loved one.

So recognise the comforting benefit of this cheap life assurance. Talk to your Financial Broker about getting the best insurance quotes for you. Get your cover in place and enjoy your new home without worries.

What is . . . ?

Life Assurance: This is cover designed to provide a financial lump sum to a family/person/company in the event of the death of a specified individual. There are different kinds of Life Assurance that include:

• Mortgage Protection – Decreasing Life Assurance – ends at set term

• Term Assurance – Level Life Assurance – ends at set term

• Whole of Life cover – Level Life Assurance – No set term

• There is reviewable and non reviewable Whole of Life cover

  Life Assurance with convertible option: You can request a conversion option on some Life cover. This allows you to extend the lifetime of your policy without having to supply any medical information. This allows some people to choose a shorter term for cover now, at a lower cost.

  An example of this benefit would be if you take out €100,000 Life cover for 10 years with a conversion option. During the 10 year lifetime of this plan you might get sick or be struck with an illness that would prevent you from taking out Life cover in the future. The conversion option would allow you to extend the term of your €100,000 Life cover beyond the 10 years and the Life company could only use your medical information from the original application.

  Serious Illness Cover: This is cover designed to provide a financial lump sum to a family/person/company where a specified individual is diagnosed with a Serious Illness.

  Income Protection: This is a cover designed to be a replacement Income if a person is unable to work due to illness or injury. It is particularly important for self-employed people.

  The cost of these covers depends mainly on your age, your smoker status, your health and the length of time you would like the cover.

  Pensions: During your working life, you can save into a Pension arrangement to subsidise your drop in income at retirement. The main advantages of this are that you get tax relief on your contributions and you get tax free growth on your investment.

  Savings/Investment plans: An alternative to saving/investing money in the bank. The main advantage is that there is a much greater potential to grow your investment. The main disadvantage is that your value can go down as well as up.

If you have a Mortgage you should read on...

I had a text from an old friend recently asking if I would like to play some football with him. I was delighted as I have been looking to get into a local 5-a-Side group recently. The day after the game, while nursing sore limbs, I got a call from my friend. He said that he had long thought of reviewing the life assurance policy that he took out when he setup his mortgage and it only occurred to him after playing football with me that I was a financial adviser who could possibly save him some money.

He emailed me his basic details – Date of birth, smoker status, total cover and remaining term on the plan. He was paying €49.49 per month and very long story short when I quoted him a current price it was coming in at €17.07 per month. There were numerous reasons why the cost decreased, but he was extremely surprised by the significant drop in cost.

There are other reasons where the topic of Mortgage Protection can come up in conversations. I met up with a person in their late forties, to discuss their Pension needs. During the meeting they asked me “are you obliged to have Mortgage Protection cover with a mortgage”. There are certain exceptions, but in general your mortgage provider would expect you to have a policy to cover your mortgage.

This client didn’t have any mortgage protection cover and stated that in the event of her husband’s death she would get “half of his pension”. I asked would this, coupled with her current salary be enough to service her current mortgage. It certainly made her think and she asked me to send her out a quote for mortgage protection cover. Much to her surprise, it was relatively cheap at €28 per month for both herself and her husband.

I suppose what I am trying to say is that its prudent to regularly  consider either taking out new or reviewing your life assurance needs.