Financial planning is more important than ever….

As a small, self-employed company, these past few months have been a challenge for numerous reasons. But when faced with a challenge, an opportunity can present itself. While I have been unable to meet clients physically, I have been arranging Zoom meeting consultations that are becoming more and more popular and are simple to set up.

The one thing that many people have had for the last 3 months, is time to review their finances and take stock of what exactly they want to do in life. Can you retire earlier than you thought? Pay off your mortgage early? Do you have enough savings? How much is enough life cover? There are many more questions I have been asked and I have been working with clients to try and help them achieve their goals.

As a result, I am finding it now that more and more people are requesting a full Financial Planning review of where they are right now and looking at different options for the future. This process is a lot more straight forward than people might imagine and further information can be found on https://www.drumgoolebrokerage.ie/planning.

1.    You fill out a financial planning statement online, clarifying your personal and financial goals. This is a comprehensive planner and will include anything from the cost of your utility bills to the cost of birthday presents.

2.    Once you have submitted the planner, I review and prepare recommendations and advice.

3.    We discuss these goals, your current financial situation, and strategies to make your goals attainable.

Following this, you decide what step to take next. This plan is just the first stepping-stone and once you have a strategy put in place, we can review this annually with you to see how it is progressing.

I find that one way to handle your personal finance is to treat it like a business. You (and your partner) are the directors of your business. A good business will forecast what is due to come in and out on a monthly basis. It will also have a reasonable idea of what to expect in the longer term, while ensuring that it has the correct provisions and protection in place to carry them into the future….even with some bumpy, challenging times along the way.

Opportunity knocks…

Recently a client who has a Mortgage Protection policy through my agency, missed a direct debit for his premium. This can happen for any number of reasons and is easily rectified. In this scenario there are usually two options; pay the outstanding premium or take out a new policy.

So, I gave him a quick call to let him know but just before I phoned, I checked my system to see if there was a better alternative available. I did a quick review and I was able to offer his family more cover and additional benefits at a reduced price.

The main reason for this is because at different times major life assurance companies will add benefits to policies and have special offers available to me as a broker that I can then pass on to my clients. This is particularly beneficial for clients of mine who have initially taken out their Mortgage Protection policy through a bank or went directly to a life assurance company. Quite often when I review policies that clients have taken with these companies, I can offer them more value for their money.

It is a very straight-forward process to apply for Mortgage Protection. I email an editable PDF application to the client and when I receive the completed application form back, I upload it to a system which sends the client a link to complete a digital signature. This is as simple as typing in your name and is a secure way of signing your application.

This digital application tool has been in the pipeline for some time, but social restrictions over recent months has pushed companies to make this option available now. So, although I may not be able to meet face-to-face, the option to complete an application has become a much easier process!

A time to reflect and not necessarily to act . . .

As a quick reminder, I would always recommend you speak with your professional financial adviser before making any changes/decisions with regards to the products/services I discuss in these columns. Each person’s individual circumstances warrant specific advice that may make their decision different from what others have done. I never advocate trying to time investments, more to work off your personal circumstances and the time that you have to invest.

The last month has seen quite a change for us all, with the threat of a virus forcing us to change our behaviours and we have had to give up some freedoms many of us probably took for granted. So, in this new world, with so much uncertainty facing us possibly over months or years, what is the best action to take with investments and/or life assurance policies?

I have to say that I have not received anywhere near as many calls from clients as I had expected over the last few weeks. I really hope it’s as a result of educating my clients in the past on the ups and downs of investments and the importance of not letting our emotions/feelings affect our decision.

I would be reiterating this more than ever to clients, particularly ones who do not need to make any decisions on their investments. The investment markets go up and they go down, people are confident when they go up and are more risk averse when they go down. To me, this is no different and to make a financial decision now without any professional advice may be a bad decision.

Some investors may think that now is the perfect time to invest, as you are getting more for your money. If you had intended on investing 2 months ago but held off, in some cases you may be investing today at up to a 30% discount on the cost to buy a month ago. A simple comparison would be if you were going to buy a car in January but held off for various reasons. Now, if you still intended on buying the car but could get it for 30% less, it would appear to be a good idea to buy it, even if things were still up in the air.

In terms of Life Assurance, Mortgage Protection, Serious Illness cover or Income Protection, your normal conditions on these plans should apply. In the case of these policies, once you have disclosed all information possible at the beginning of the policy, events that change after the policy has started do not usually alter the conditions allowable to make a claim. If you are unsure or concerned, my recommendation is to contact your broker or the company who provided the policy. Many companies are still offering customer service support at this time.

A Personal Story...

The following is a story of a couple with three children and how they came to review their finances.

“My husband and I had put off any sort of review for numerous reasons. To be honest we didn’t really understand what was involved in a financial review, we had limited funds at the end of each month and didn’t really think about how we would fare financially if something insidious happened to either of us.

We had a life assurance plan that will clear our mortgage if one of us dies and a small life assurance policy with some serious illness cover. We had discussed the importance of starting a pension (for both of us) but had just never gotten around to it. So before proceeding, we decided to get a financial review. For the review we filled out a budgeting form outlining our day to day expenses and including any other relevant information (like our mortgage and any savings or insurance plans we had).

While our initial intentions were to focus primarily on what should go into the pension pots, during the review we got a clear idea of areas we hadn’t considered. The budget showed us how much money we had each month after all our bills had been paid. We were also able to see a visual graph of our income/savings should myself or my partner die or were unable to work long term…which took us by surprise.

We decided on the amounts to put towards our pensions and then asked our broker to work on our other requirements to keep within a budget of €100 per month. We discussed multiple options to try cover our salary and assurance needs within that budget and he was then able to show how this solution would cover us on the same graph shown to us initially.

After the meeting we felt the following queries (relevant to our situation) were addressed;

-       The length of time we would get a wage from our employer before they stop paying us should we be unable to work for a prolonged period.

-       The cost to protect our income.

-       The figure we could afford per month and the best way to utilise it.

I certainly feel that we now have a better understanding of our finances. We have started to put the correct provisions in place for retirement while addressing additional protection needs. This has been like a medical check-up on our financial health.”

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.