Protect Your Wage

We have in the past discussed the benefits of protecting your income (Income Protection) but some factors can affect whether you will be in a good position to obtain this type of policy. If you are self-employed and depending on your profession, the cost may be too high for the cover you need.

In this instance there is a similar budget-friendly option – Wage Protector. Wage Protector is an everyday essential that works when you cannot. It is designed specifically for workers in riskier jobs who are generally more expensive to insure, such as construction workers, electricians, plumbers, mechanical engineers and the self-employed. It has all the same features of the full income protection plan, with the only difference being that it will only pay out for a maximum of 24 months per claim.

The product is divided into two types of cover:

Transitional cover: This cover kicks in after the deferred period and pays you a replacement income for 24 months if you are unable to do your own job. This gives you an opportunity to get back on your feet or prepare for an alternative job. After this initial period, depending on your circumstances, full Disability Cover may apply.  

Disability cover: This cover will apply if you are unable to return to any work due to significant illness or injury and suffer a loss of earnings as a result. You must pass a Functional Assessment Test to qualify for this cover. This is a simple, easy to understand set of physical and mental ability tests.

There are many other additional benefits included with this type of policy so visit www.drumgoolebrokerage.ie/income-protection for more details. Have a question or want to review your cover? #justcallOran on 087 668 6624. Quote source Aviva L&P

€100 For Cover That May Only Cost €70???

Our new financial planning system has been hugely successful and popular in assisting clients with setting budgets and plans in place for their future. We try to get people to visualise what they would like to have as a goal, whether it is to pay off a mortgage early, retire early, travel the world or simply provide for family later in life.

Another handy way it can help is to configure whether a person has enough protection in place. Whether it is mortgage protection when purchasing a home or perhaps income protection for a self-employed person, the first question we ask is …how much have you got to spend? This is a great starting point as we can then provide various quotes to accommodate this figure without going over budget before we have even begun!

The following is an example of a quote for Joe Bloggs who is a married, 35-year-old, non-smoker who told us that he has €100 as a monthly budget for his protection needs. In his case, the three main areas he wanted to review was protection for his income, life cover for his family and specified illness cover.

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After we provided Joe with these quotations, we were able to inform him that he can claim tax relief on €75 of this cover at his standard tax rate (20% or 40%). This meant that he could save €15 to €30 a month bringing the total cost (€100) of the cover down to as little as €70 per month.

Family Protection for Cohabiting Couples

When structuring life assurance for cohabiting clients and their family, it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act.

So, if you are cohabiting and have no Will in place, the proceeds of a life assurance policy could end up in the hands of the deceased’s ‘next of kin’, their parents or even their brothers and sisters, if the arrangement is not structured correctly.

With the possible exception of the family home, the total value of all assets passing between two people who are not married or civil partners, are liable to Inheritance and Gift Tax, regardless of how long the couple are living together. This includes the value of any life assurance benefits.

If the beneficiary did not pay the premiums, or if the beneficiary is not the legal spouse or registered civil partner of the person who paid the premiums, the plan proceeds will be liable to Inheritance Tax.

From a tax perspective ‘partners’ are treated as ‘strangers’ for Inheritance Tax purposes with a threshold of only €16,250 (currently) tax-free. The balance is currently taxed at 33%. Where there are children of the current or a previous relationship there can be confusion over who the proceeds of the life assurance contract will be paid to, as well as how the proceeds will be taxed.

For example, a new client recently asked me to set up a Life Assurance policy for her protection needs. This client is not married to her partner, but they have one child. They had initially received (bad) advice to set up a dual life Term Assurance plan along with their joint life Mortgage Protection plan.

In this instance, I recommended they each set up an individual Life Assurance policy on the other person (i.e. Life of Another) with the premiums being paid from their individual bank accounts. It may be slightly more expensive than a joint/dual policy, but they will potentially avoid a future tax bill of 33% as described above.

In the event of death, who will receive the plan proceeds?

The sum assured will automatically be paid to the policy owner in the event of the death of a partner. If both were to die during the term of the plans, the proceeds will go to the estate. In the case of my client, she will leave the entire estate to their son.

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.”