Life Assurance that continues after you stop paying premiums…

I have received many queries about different kinds of Life cover over the last few months. There are different kinds of Life Assurances, but most recently there was a specific one (reviewable life cover) highlighted on the Joe Duffy show. Very long story short, the cost of this cover is reviewed every 5 to 10 years and in most cases the monthly cost increases, particularly when a person is getting into their retirement years.

The normal alternative for people is to take out a different whole of life (non reviewable) cover or a cheaper Term Assurance option. In these alternatives you have to keep paying the premiums until either there is a Life Assurance claim or the policy term finishes.

But there is a third option that has recently been made available; it is a life policy whereby you take out cover for a specified period of time. After this time elapses you will stop paying premiums, but you will continue to have life cover so there is a guaranteed pay-out on death.

Factual Example:

Male – Aged 60 – Non Smoker - €50,000 Life Assurance for 20 Years - €77.18 per month

In this example the person has €50,000 life cover during the 20 years while they pay their €77.18 per month. After 20 years, this person stops paying the €77.18 per month and they will continue to have €20,000 Life Assurance. The total maximum premiums paid during this term will be €18,523, yet once all the monthly premiums are paid; there is a guaranteed life assurance pay-out of €20,000.

As with all life assurance applications, this is subject to medical underwriting. Some people decide not to even apply for Life Assurance because they think they may be hindered by a personal or family medical condition. This is not always the case; you have nothing to lose by sending in an application and finding out one way or another.

Some people like to target their retirement age (65-75) so that the cost of the cover will cease around the time their income reduces at retirement. This sort of cover can be taken out for as short as a 10 year term (so in the above example the cover would last for 10 years after which they would stop paying the premiums and the €20,000 Life cover would continue).

The biggest advantage to this cover is that you know from the start exactly how much cover you will have at all times and how much it will cost. The monthly cost and the cover will remain the same unless you choose to have an increasing option (where the cover increases yearly).

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.

Worried about applying for Life Assurance because of your health?

I was speaking with a neighbour recently about Life cover and they were concerned about whether or not they would get Life cover. There were specific health concerns in their family that convinced them that they would not be able to get life assurance. I thought it might give some people peace of mind to know a few things about the medical side of a Life Assurance application.

Genetic test

Under the provisions of Part 4 of the Disability Act 2005, an insurer cannot request, take into account or process the results of genetic tests.  This applies to both positive and negative tests. The recent public discussions about the BRCA gene would probably be the most recent example of a gene that would be covered under this act.

However this exception does not change your legal obligation to provide the insurance company with full details of any symptoms experienced, non-genetic laboratory tests or investigations, treatment, and family history when answering the questions on the application form.

Other Concerns

I have spoken to people who are reluctant to send in an application because they want to improve their current health by losing more weight or giving up smoking. This is not a very prudent strategy because of the potential implications to their family if they were to pass away before reaching their healthy goal.

The important thing to remember is that until you put in an application you will never be fully sure if your current health situation will make any difference. There is a lot of incorrect assumptions about Life assurance medical underwriting that prevent people from trying to either improve on their existing cover or taking out a new plan.

There are specialised Life companies who offer Life Assurance to people who are medically higher risk but have been declined by mainstream Life companies in Ireland. I would encourage people to not let their current health situation put them applying for the Life assurance they want.

Some Life Assurance Queries

If you are in doubt as to whether or not you should review/change your life cover, you should be aware that in practically all cases, you get no benefit from remaining in your existing cover for the entire term. Hopefully the next few questions will help clarify some of the regular queries I have been receiving.

Question: When I took out my Mortgage, the Mortgage Lender insisted that I take out something called a Mortgage Protection policy, what exactly is this?

 A Mortgage Protection Policy is a Life Assurance policy. This is the cheapest Form of Life Assurance available and starts from as little as €10 per month. The cover on this kind of policy decreases over time as the policy is designed simply to pay off the balance of your Mortgage if you should pass away at any time.

Question: Other than for a mortgage, why would I want any Life Assurance?

Life Assurance should be thought of like Car Insurance in that you are not taking the cover out so that you get a financial gain. You are taking out both types of cover to protect yourself (or your family) in the event that you need to make a claim on these policies. Ideally, you will never need to make a claim on either, unless something happens that requires you to do so.

Question: Is it easy to change my Life Assurance?

Yes, it is very easy and once your medical situation hasn’t changed since you originally took out your cover, you may make significant savings for the exact same cover. Indeed you may even be able to get added benefits on your Life assurance while also saving money at the same time.

Jim's Story continues...September 2013

Jims Story. . Continued. .

So let’s recap…. Jim has Mortgage protection cover for himself and his partner that he took out years ago when he got a mortgage. He has had two children since he last looked at his family’s financial protection. His mind was focused on reviewing his cover when a work colleague gets ill and he decides to review his family’s protection.

After discussing and reviewing Jim’s personal circumstances, we were able to discuss how much Life and Serious Illness cover Jim should consider. He had a tight budget so we were limited in how much cover we could setup. We first worked out how much cover Jim would ideally like to have and then we started to try and fit this cover into his budget.

Ideally, Jim wanted to have this cover for at least 20 years, so that his children would be adults (not so dependent on Jim) by the time the cover ceases. He also wanted to have the same amount of Life and Serious Illness cover to protect his family if he died or was struck down with a serious Illness.

The term of the plan affects the cost of the cover. In Jim’s case, he wanted to keep as much cover as possible at the start, so we reduced his cover term from 20 years, to 10 years. But we chose an option on the policy that gave him the option to extend the term of the plan if he wanted to, during the 10 year life of the plan.

Life cover is cheaper than Serious Illness cover, so we were able to keep the amount of Life cover that Jim wanted. The premium was still a bit higher than Jim had originally budgeted so Jim had two options. He could either reduce his serious illness cover a bit or increase his budget to match the cover he wanted.

I also discussed the same kind of cover with Jim’s wife, Clarice, who looked after the children while Jim was at work. Neither of the couple had factored in the cost to the family (childcare) if something was to happen to Clarice.

In the end, Jim and his wife had an understanding of where their family would be, financially, if either of them died, or if either of them suffered a specified serious Illness. Since we had spent time going through the different aspects of the cover, both had a much greater understanding of the cost and more importantly the value of the cover.

They were both so happy with the outcome of our meeting, they asked would I come back and help them find and review some Pension plans they had from different employment throughout the years. That is a story for another day . . .

Jim's Story....August 2013

Jim’s story . . .

Jim took out a Mortgage Protection policy with his wife when they took out his mortgage. At the time, Jim only took the cover out because it was a requirement from the bank for him to get their mortgage approved. He wasn’t even sure exactly what cover it provided himself and his wife.

Jim wants to review his existing cover because one of his work colleagues has battled with cancer and it focused his mind on his own circumstances. We sat down and discussed his existing Mortgage Protection cover to make sure that he understood where his family would be financially in the event of the death of either partner. In short, the Mortgage protection policy would cover most (if not all) of the outstanding mortgage.

Since Jim took out this Life cover he had welcomed 2 children into his family. It hadn’t occurred to Jim how this important change in family circumstances might require having a look at the level of cover he was providing for his family until his work colleague got very sick.

As it stood, if Jim or his partner died, they would own their house. Great, so the family owns the house, but what now? If Jim dies, his partner will either have to quit work to look after the children or possibly pay somebody to look after them.  What are the costs in doing either of these things? Where do they get the money to be able to afford the time with the children or the cost of childcare?

If Jim dies, he is the main income earner, but who looks after the children? How much will it cost? What if Jim wants to take time out to bereave the death of his partner (and spend more time with his children during this tough transitional period)? Can he afford to do this?

Jim hates the thought of even considering life without his partner and his partner does not like to think of how the family would struggle financially without Jim. However, they both accept that one way or another, if one of them died, the family would not only lose a loved one, they would be at a financial loss that they needed to acknowledge.

This is a very hard step to take. To try and put a value on a family member or a partner is not particularly something any of us want to think about, after all no amount of money can replace a loved one. Whether a person has younger dependants or is on their own, the loss of a partner will very likely have a financial impact on their lives.

Jim’s story continues next month. .