Additional Life Cover

Question: I’ve just had my third child and have been advised to put some insurance in place, but after making some enquiries, I’m pretty confused and have a limited budget. What’s the difference between Life, Serious Illness and Permanent Health insurance?

Answer: Yes, insurance is an important consideration, especially when you have people who will be financially dependent on you. Understanding the benefits of each of these types of insurance can be confusing at times. As a guide, Life Cover pays out a lump sum in the event of your death. There are generally two types; one that lasts for a specific number of years called Term Assurance and a Whole of Life alternative which can provide family protection, protection of your estate and business protection (until death). If you are self-employed, Life Cover can also be used to ensure the financial survival of your business in the event of the death or serious illness diagnosis of a director or key employee (Key Person Insurance). Mortgage Protection is also a form of Life Cover which decreases over time as the policy is designed simply to pay off the balance of your Mortgage should you pass away.

Serious Illness cover pays out a lump sum if you are diagnosed with a specified serious illness during a determined number of years. The list of defined illnesses can vary from company to company but generally most major illnesses like cancer, multiple sclerosis and stroke are covered. It can be taken out on its own or alongside Life Cover. It can also help subsidise a missing income if you or your spouse/partner are unable to work due to illness or disability.

Permanent Health insurance is more commonly called Income Protection and it effectively replaces some of your income (up to a max. 75%) if you are unable to work for an extended period of time due to an accident or illness. This type of policy provides you with a regular income, starting after a deferred period (from four to 52 weeks) with the potential to continue until you retire depending on your health. Affordability is obviously an important factor and your age, current health and the amount of money you want to be insured for all impact the cost.

Conclusion: For any change in lifestyle (eg. 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. One call to your financial broker can help you understand the options available and to ensure you are spending your hard-earned money appropriately.

Multi-Claim Protection Cover

Multi-Claim Protection Cover has two main differentiators to some of the other protection products available on the market. Namely, it 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.

The claims triggers are designed to be proportionate to the severity of the illness and its impact on the customer’s life. It looks to link pay-outs to actual life-changing or traumatic health events and their impacts, rather than the solitary illness and one-time pay-out.

MCPC is more inclusive than some other types of protection cover. For example, people who have survived a heart attack, cancer or a stroke can be eligible for this policy. Similarly, some people with type 2 diabetes or MS can, with relevant exclusions, get cover.

Some other benefits are;

·              Provides cover for the impact of a serious illness such as having a heart attack or receiving cancer treatment eg. medical devices required for the long-term, taking time off work, or making adaptations to your home if needed due to the impact of the illness.

·              It also covers other life impacts, for instance, a long hospital stay such as after a serious road traffic accident or serious surgeries like a hip replacement.

·              Life cover is inbuilt into the policy, you can add extra life cover if needed.

·              This policy can pay out 5% to 100% of your cover (your original sum assured when you take out your policy) depending on the illness or condition. This means for less serious illnesses or treatments, it will pay out potentially less than 100% of your cover, keeping the rest of your cover in place for any future, more severe illnesses. For illnesses or treatments that have a more serious impact, it pays out a higher amount.

·              After a claim, your monthly payments (premium) will not change.

·              Children's cover and premature birth cover included.

·              Helping Hand service - Available at no extra cost, this support service can help your family (your spouse/partner and children) through a difficult time if you're diagnosed with a serious illness or pass away.

Example: Mary is 42 and has €100,000 cover. When diagnosed with invasive breast cancer Mary is referred for chemotherapy, radiotherapy and a mastectomy (20% paid out for chemotherapy, 20% for radiotherapy, 20% for major surgery -mastectomy to remove an invasive tumour) MCPC paid out 60% of Mary’s cover (€60,000) which would leave Mary with €40,000 cover for any future illnesses or health setbacks covered under her policy.

What is Automatic Enrolment?

On 30th October the Government approved a large part of a new Automatic Enrolment Retirement Savings System which will supplement the State Pension from 2022. The aim of this process is to improve supplementary pension coverage. Is €248 per week enough for most of us to survive on when we reach retirement?

Who is it for?

• Current and new employees aged between 23 and 60 years of age and earning €20,000 or above per annum across all employments will be automatically enrolled.

• Employees earning below €20,000 per annum and employees aged under 23 and over 60 will be able to ‘opt-in’ to the system.

• Employer contributions will be limited to a qualifying earnings threshold of €75,000 – which will be reviewed over time.

• Employees who are existing members of a pension scheme/contract which meets prescribed minimum standards and contribution levels will not be automatically enrolled.

How will it work for employees?

• Unless an employee is a member of a scheme already, contributions during the first six months of membership will be compulsory. Opt out is available after this time and a refund of contributions.

• A limited number of ‘Savings Suspension periods’ will be facilitated for members who wish to temporarily cease making contributions. Employer and State tax relief will also cease in this scenario.

• Members who opt-out will be automatically re-enrolled after three years but will have the ability to opt-out again under the same circumstances outlined above.

• Employees (rather than employers) will be responsible for selecting a provider and a savings fund option. In the absence of any savings decision, the enrolled employee will be automatically allocated to a default fund. These funds will operate on a Defined Contribution basis.

• Invested funds and scheme membership will follow the member when members change employments.

How will it work for employers?

• Employees will be automatically enrolled with the Central Processing Authority by their employer on commencement of employment.

• Employers will be required to make a matching (tax deductible) contribution on behalf of the employee i.e. at a specified contribution rate.

It is worth noting that the specifics of Auto Enrolment may change between now and 2022. Part of the reason the government are introducing this process is due to the reliance on the state pension. Some people feel there is a chance the state pension will eventually be phased out or will reduce over time for numerous reasons. The question people should ask themselves is, do they want to leave the future of their retirement lifestyle in the hands of future governments or would they prefer to save themselves and retain some element of control.

Budget 2020

Small increase in self-employed and home carer tax credits

The Earned Income tax credit provided to the self-employed and proprietary directors who cannot qualify for the PAYE tax credit, will be increased by €150 in 2020 to €1,500. This will mean a minor income tax saving of €150 p.a. for most self-employed and proprietary directors.

The home carer tax credit will be increased in 2020 to €1,600. This credit can be claimed by a married couple who are jointly assessed for income tax where one spouse works in the home caring for a dependent person, e.g. a child.

Increase in the child CAT Threshold

The CAT Threshold which applies to gifts and inheritances taken by children from their parent has been increased by €15,000 to €335,000 with effect from 9th October 2019. There is no change in the other Thresholds or in the CAT rate of 33%.

The maximum Inheritance Tax saving from the increase is €4,950.

No increase in State Pension

However, the Living Alone allowance will be increased by €5 pw from €9pw to €14 pw from March 2020.

In June 2018 the Revenue confirmed that the State Pension Christmas Bonus could, once received, be counted as income for the purposes of the €12,700 specified income test to avoid having to invest €63,500 of retirement funds in an AMRF or annuity or to unlock an AMRF already held.

Increase in Social Welfare rates for children

Social Welfare benefit rates are increased to €36 per week for under 12 and €40 per week for 12 and over.

Increase in employer’s PRSI rates

Because of a 0.1% increase in the National Training Fund Levy (which is collected with PRSI) the employer’s PRSI Class A rate will increase from its current 10.95% to 11.05% in 2020, for employees earning more than €386 pw. For lower earners, the employer’s PRSI Class A rate will increase from 8.7% to 8.8% in 2020.

Help to Buy scheme extended for another two years

The Help to Buy scheme gives a rebate of income tax paid over the previous 4 years to first time buyers of 5% of the purchase price/value of their new home up to €500,000, subject to a maximum rebate of €20,000 per property. The scheme only applies where the mortgage is at least 70% of the home value.

Increase in Stamp Duty for commercial property

The Stamp Duty rate payable on the purchase of non-residential property will be increased from its current 6% rate to 7.5% with effect from 9th October 2019. This will impact on pension investors investing in non-residential Irish property after 9th October 2019.

The Early Bird...

In Ireland, 38 per cent of all working adults don’t have a pension. Of those people that don’t have a pension and don’t ever intend on starting one, 65 per cent plan to live off the State pension when they retire*.

These findings are revealed in Zurich’s latest research into pensions in Ireland. This is the second year of this comprehensive research study and highlights the concerns many people have about their future and how they will maintain their standard of living when they retire.

This year, 53 per cent of those surveyed that don’t have a pension, state that lack of spare money is the reason for it. Of those who have no pension, 31 per cent plan to start saving in one to five years, but more worrying is that 42 per cent think it is too late to start a pension at this stage in their lives.

In 2019, 62 per cent of working adults have a pension. They are contributing €220 on average to their pension scheme each month. Of these, less than half are happy with the size of their personal contribution and 76 per cent would like to be able to save more. According to those surveyed, the average annual income needed to lead a normal life in retirement is €26,747.

Longer life expectancy and working lives might lead some to think that retirement is a long way off, but the sooner you start saving the better. The picture of life in retirement is going to look different for everyone, but it’s worth thinking about what lifestyle you would like, how much that will potentially cost and the income you will need to sustain that.

The message is getting out there that there are tax incentives for people saving into a pension. Almost 60 per cent are aware that everyone who makes pension contributions is entitled to tax relief and 55 per cent know that part of their pension funds can be taken tax-free upon retirement. However, 61 per cent admit that they don’t understand how pension savings are invested, which is up 3 per cent on last year’s figures.

Pensions might seem complicated but they don’t have to be. Engaging with a financial adviser is a good starting point. They can help demystify pensions and investments and get you started on a savings journey that will work for you and planned life in retirement.

Safeguard your business with Key Person Insurance

Following on from last month, this article is aimed once again at business owners. As an employer, you know that running a great business means having a team of great people, but there may be one person who stands out as being a key player or central in the company's success. This person's knowledge, work, or overall contribution is considered uniquely valuable to the company. How would your business cope if that person were to pass away, or become seriously ill? 

What is Key Person Insurance?

This 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 an important member of the business.

How does it work?

You can take out Key Person Insurance at any stage of your company's lifetime. You will pay a premium on a regular basis, based on the cover that is required. If the unexpected happens and this person dies, or becomes seriously ill, the policy will provide a lump sum to compensate for this event. This can be used to offset any financial losses incurred. It can also be used to contribute to bank loans where the key employee gave a personal guarantee, or to pay off loans made to the company by the key employees.

Product features

·         Protection: If a key employee dies, a cash sum is paid to help maintain the business.

·         Continuity: Can help minimise interruption to business activity.

·         Financial assistance: Can help with bank loans that involved the key person.

·         Staffing: Can help provide resources to find a suitable replacement for the employee.

Who is Key Person Insurance for?

This kind of life insurance can be taken out by a company of any size, where there is a need to protect against the loss of an extremely valued employee of high financial or strategic importance to the business. Deciding on the sum of money to insure the key person is dependent on the company and the reason for insuring that individual.

Why take out Key Person Insurance?

Availing of this kind of life insurance can give additional security to your business, as it safeguards against the loss of a key employee. As an employer, it can bring you peace of mind in the knowledge that you are protected from the financial fall-out due from the death or incapacity of a very important member of your staff.

Attention Business Owners……

If you own a percentage shareholding of any business, have you a plan in place in the event you pass away to ensure your estate or beneficiaries will get the full value of your shareholding? Can your company afford to compensate your estate/family or buy back this shareholding?

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.

What are the advantages of Directorship Protection?

1. In the event of a director dying, the remaining directors participating in the agreement retain control and ownership of the company as they buy back the deceased director’s share.

2. The next of kin are bought out of the company by the remaining directors at market value and can therefore realise the cash value of the deceased’s share shortly after death.

3. The company/directors do not have to find the funds to cover the cost of the deceased shareholding.

4. It is a relatively straight forward shareholders plan.

How does this work?

There are two main parts to this arrangement:

1. The Legal Agreement between the directors to regulate the position on death.

2. The Life Assurance on each director’s life to provide the funds to the remaining directors to make a payment to the deceased director’s next of kin.

The solution outlined above can be achieved in one of two ways:

• Personal Shareholder Protection - The shareholders enter into a personal agreement with each other to "buy out" a deceased shareholder's shares in the event of his/her death. To provide the funds to fulfil their personal obligation under the agreement, each shareholder personally effects life assurance cover which is payable to the surviving shareholders on his/her death. The proceeds of the life assurance policy are used to "buy out" the deceased's next of kin in line with the agreement.

• Corporate Shareholder Protection - In this case the company enters into a put / call agreement with each of its shareholders to buy back shares from their personal representatives in the event of death. The company takes out a life assurance policy on each shareholder, to provide funds to enable the company to fulfil its obligation under the agreement. In the event of death, the proceeds of the life assurance policy are payable to the company, to be used to buy back shares from the deceased's next of kin.