Life Assurance Q & A

The following are some of the most frequently asked questions when people are concerned about getting new or replacement Life cover.

A big concern of many people when they are considering changing their life cover is whether or not they lose out by cancelling a Life Assurance policy that they have had for years. The first thing to understand is that once you have completed a Life Assurance form as honestly (medical questions) as possible and once the first premium has been paid, you are instantly covered. That includes even if there is a life assurance claim after only a day of having the cover.

The main benefit to holding onto a Life Assurance policy that you have had for years would really only be if your medical status has deteriorated from when you took it out.

The leading question after this can be is it worth applying for Life cover if there are medical conditions personally or in your family that may affect a Life cover application? Some people do not even make an application for Life cover for fear of getting some sort of medical penalty.

There is little to be lost by applying for the cover, whether you are penalised or not. You do not have to proceed with the cover if you are not happy with the extra cost and it may be a penalty that might only be valid for specified time, which would at least give you an indication of when you will be able to get cover without the penalty.

There are different options for people who have medical conditions that may limit their access to Life cover. There is a Life Assurance company that only offer Life cover to people who have been declined Life cover completely. There is also Life cover for people over the age of 50, who are guaranteed Life cover, without being required to supply ANY medical evidence. It can be quite stressful being declined Life cover, but it is comforting to know that there are alternatives.

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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.

Pensions: Exercise for your long-term financial wellbeing!

I have a wife, three young children and I work for myself. It can be tough to find time to get the exercise that I would like. I know exercise will help me feel better and will more than likely be extremely beneficial to me in the long-term if I keep it up. As such I have started to do a boxcercise class.

For me, exercise is not just about feeling good now; it’s about trying to feel good in the future. It’s about trying to condition my body to be healthy and strong and in the long term I hope it might extend my life. I know that exercise can improve my immune system which in turn may allow me to be more active in my later years.

A Pension is a personal retirement savings account (PRSA). You could say its exercise for your financial wellbeing. It’s about putting the work in now, so that you may benefit in the long term, particularly in your later years when you may not have the same opportunities to enhance your financial health.

There are days when for numerous reasons I really don’t want to get out to do the boxcercise. The days I push myself to get up and do it, I feel better and the days I give in and rest, I feel a little guilty. I can honestly say that any client that comes to me at retirement is happy when they have a Pension of their own to drawdown. In many cases they express remorse that they didn’t save more when they had the opportunity to do so.

Like exercise, the sooner you start contributing to a Pension the better the potential long term benefits. I know that I would prefer to retire as young as I can, but I also know that will be very much dependant on my physical health and my financial health. In both cases, I can only commit so much time/money now, but a little bit of both is better than nothing of either.

Questions on old Pensions left behind...perhaps even ones forgotten!

In this article I will run through some of the most frequently asked questions in relation to old paid up pensions. These are pensions that you may have had with a previous employer that you never moved or enquired about at the time you left employment.

How do I get information about my old Pension?

In most cases you should be receiving annual benefit statements with general details (including the value) of your Pension. If you are unsure where to look, the company’s human resource department (or Employee Pension department if there is one) is a good start.

Can I bring my pension with me when I move employment?

In most cases, when you leave employment, you have several options. Indeed you are entitled to request “leaving service options” which sets out exactly what you can do with your Pension. This can intimidate and confuse people but if it’s explained correctly I find people are more confident moving their Pension into their own name.

Will I lose out if I move out of the old Pension arrangement?

The only way of knowing is by enquiring about the benefits currently on the Pension plan, but in many cases you can actually benefit from moving your Pension funds into your own name.

If you do move a pension to your own name one of the biggest benefits is that you get direct access/information sent to you personally about you Pension. Some people like having complete control over their Pension and like not having to contact a Trustee (or old employer) anytime they want information regarding their Pension.

What can Drumgoole Financial Services Limited do for you?

Part of my job is to help people arrange their pensions together into an efficient/transparent portfolio. In simple terms this means you know exactly what you have and where you have it.

When many people move on from a job, they leave their Pension paid up (sitting idle) in their old Pension arrangement. I have had clients contact me who have had no correspondence in relation to their Pension for one reason or another.

Do you intend on relying on the government for assistance?

If you are currently employed and not saving into a Pension arrangement, have you ever thought about what retirement will be like? Have you dreamt of spending time with the grandchildren or going on nice breaks away every few months in your twilight years?

If retirement is not something you “dream” about, it is certainly something you should have in the back of your mind. A pension is a savings policy designed to subsidise the drop in income when we retire. The current state Pension is €230.30 per week (€11,975 per year).

Recently the age at which a person is entitled to receive the state Pension has increased. Some economical commentators think that the government may phase out the benefits of the state Pension over time. They could do this by raising the retirement age further or even by simply not increasing the current Pension entitlements (which will reduce the spending power over time).

A big question that people should consider now is that if they are comfortable with the thought of leaving the fate of their retirement in the hands of future governments? One of the biggest advantages of a Pension is that the more you have at your retirement age, the more financial control and flexibility you will have over how you spend your retirement.

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.