The Impact of Covid-19 on your Protection Policy

Over the past year, some of the following queries have come up and hopefully these answers may help to ease any concerns.

Does my life assurance policy cover Covid-19?

As your life assurance policy is designed to pay an agreed sum on the death of the policyholder, a payment will be made should death occur as a result of Covid-19.

Is Covid-19 classed as a specified illness under my critical/serious illness cover?

Critical or serious illness cover is designed to pay a lump sum on diagnosis of a specified illness of the policyholder. As Covid-19 is a new illness, it will not be covered or listed as a specified illness under this particular type of protection policy. However, should Covid-19 develop into one of the illnesses specified listed under your policy, you may then be eligible to claim for this illness in accordance with the policy’s other normal terms and conditions.

I can’t afford to pay my premium for my protection policy, but I want to keep the policy. What can I do?

In this instance many insurers will offer either a payment holiday or a reinstatement option. A payment holiday will allow you to defer your monthly premium for a certain amount of months without losing cover on the policy, so a valid claim during the payment holiday would still be covered under the policy. A reinstatement option will allow the policy to be reinstated after a period of missed payments with little or no updated underwriting required. You will be required to pay the missed payments at the end of the period.

Is Covid-19 covered under my income protection policy? Can I claim on this if I have been made redundant or lost my job due to Covid-19?

Income protection insurance is designed to replace some or all of your regular income in the event that you are too ill to work for a period of time. This assumes that you will be medically advised to take time off work and most policies will require that a diagnosis of an illness, including Covid-19, has been received in order to claim on that policy. It should be noted that many policies will include a deferred period which must take place before the claim will be paid.

Will I be asked about Covid-19 if I apply for a life, critical/serious illness or income protection policy?

Yes. Insurers may ask Covid-19 related questions in different ways but will be likely to cover whether you are currently experiencing symptoms and whether you have been tested/waiting on results of a test.

Inheritance Planning

An inheritance can change a person’s life for the positive. In some instances, inheritance can be received tax-free but there are other scenarios where there will be a tax liability. In many cases an inheritance will be potentially subject to Capital Acquisition Tax (CAT). This is determined by the amount you inherit and the relationship you have with the deceased. You can receive gifts and inheritance up to a set value over your lifetime before having to pay this tax but once it goes over a certain threshold, then you are required to pay at a tax rate of 33%.

As it currently stands in 2021, the threshold is as follows:

Group A – From a parent to a child - €335,000

Group B – A parent, brother, sister, niece, nephew, grandparent, grandchild, linear descendant/ancestor - €32,500

Group C – All other cases - €16,250

If you have made a will and are planning on leaving a property or lump sum to a child, close relative or friend, then one way to counteract some of the CAT is to set up a Section 72 policy. It is a Whole of Life insurance policy which can be used to pay a future inheritance tax bill, which may be incurred by your loved ones in the event of your death. The policy holder must be the person who is leaving the inheritance.

The main benefit of this policy is to make the inheritance process as simple as possible. Where a property is being inherited and its value is above the allowed threshold, the proceeds from this policy will save your loved ones from having to pay out a tax bill from their own pockets or even be forced to sell the property to cover the tax bill. For example, a house worth €500,000 left to one child will mean a tax amount of €54,450.

Another option for portioning out an inheritance is to gift a child up to €3,000 tax-free using the small gift exemption. This means they may take a gift from several people in the same calendar year up to €3,000 but be exempt from CAT. This small gift exemption applies only to gifts and not to inheritances.

Where a parent may want to gift a substantial asset to a child in the future, then the gift would be taxed as above. An option to prepare for this tax bill is to set up a Section 73 policy. This is a savings policy which can be used to pay gift tax. It must be set up specifically for this purpose and premiums must be paid into the savings plan for at least 8 years.

The 5 Life Stages of Finances

Not everyone falls into the following categories over the course of their adult life but in general, this is a guideline of what you may expect at different stages …

20s

You may be a student working part-time or be part of the workforce full-time, but either way you will learn how to become financially independent and how to budget during these years. It is a time when you may have a bit more freedom in what you do with your money, but it is still a good habit to save a portion of your money. There may be student loans to pay back which will teach the importance of paying back debt. You may still live with parents where you are contributing towards the household costs or if renting this will teach you to budget each month.

30s

You may plan for some of the bigger life decisions during these years e.g. purchasing a home / starting a family / getting married. Clearing debts such as credit cards or loans is important at this stage when applying for a mortgage, along with saving for a deposit. Mortgage Protection will protect your house should something happen to you (or a spouse), but it is always good to have an emergency savings pot once children come along. You could start contributing towards a pension either through your employment or a personal plan.

40s

At this stage if you do not have any additional Life or Serious Illness cover, then this is important if you have a family to think about.

This is a time for putting a plan in place for further into the future, whether for your children’s education, your retirement (pension) or savings pot. Keeping debt at a minimum and carrying out an overall financial review on incoming and outgoing funds is helpful.

50s

You might hope to finish paying off a mortgage in this stage of life. If you have children, they may be nearing adulthood and becoming less dependent on you financially.

Reviewing your retirement portfolio now is a good idea and if you can max out your retirement contributions then go for it. A financial planner can guide you with this and ensure that your current savings plan will provide you with enough money to retire. It is wise to check that your investments are at an appropriate risk level.

60s +

Make sure you have enough money in retirement savings to support yourself and your family.

If you do not already have a will, get one drawn up and plan your estate.

Money Skills for Kids

We recently decided it was time for our 3 young boys to learn the value of money and the importance of managing it. This was motivated by a need for them to understand how money is earned but also to start giving them small responsibilities in our home and life skills for the future.

We work so hard to ensure our children develop good manners, confidence, empathy along with many other important personal traits. Earning pocket money and taking care of it can teach a child to become independent and to make decisions for themselves.

A few ways to get them started…

1.    An opportunity to earn pocket money

Decide on a list of chores they can complete depending on their age. Pick a day and time to complete the weekly chores but also include some simple daily tasks to be completed e.g. Clearing the table after eating, emptying/filling dishwasher or washing dishes, putting rubbish into the bins. Agree on how much pocket money they can earn and a day that they will receive it each week.

2.  Set a budget... save vs spend

This will help them to understand the rewards of saving and being able to budget perhaps for something they would really like to buy in the future. Decide where they will store their pocket money and set out some goals using two separate pots.

• Spending Pot: Perhaps they would like to spend a fraction of their pocket money each week on something small, so help them to decide on an amount for this pot.

• Savings Pot: They may decide to save for something they would like to buy at some stage in the future or to maybe have spending money for holidays or a day out. If they have a goal amount, see if they can work out how much and how long they may need to save to get to that goal.

3.  Open a savings account

A savings account can be ideal for older children. It can help familiarise them with different financial terms used such as deposits, withdrawals, interest. It also brings a satisfaction if they can see their savings figure increase each week. Another option is to set up a Revolut junior account where you can transfer pocket money to their online account, and they can use a prepaid card. This would be handy now with the preference of contactless payments. They can also use the junior app to view their account balance, while parents have full control of the account.

Did you know....?

Did you know... Multi-Claim Protection 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.

Did you know... Life insurance pays out a lump sum if you die or suffer a critical illness (depending on the type of cover you hold). Death in service is similar. Death in service may be offered by companies as part of an employee’s benefits package. It’s paid out as a tax-free lump sum if you’re employed by the company (i.e. on the payroll) at the time of your death.

Did you know... When you apply for life insurance, you may be asked to complete a medical exam and the life company will pay for this medical exam. It might be a good opportunity to avail of a complimentary check up!

Did you know... Key Person Insurance 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 a key member of the business.

Did you know...  Income Protection policies and some Life Assurance policies allow you to claim tax relief at either standard tax rate (20% or 40%). This means if you are paying €100 monthly, you may get as much as much as €40 refunded on this premium

Did you know... 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. By setting 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, this can help avoid a potential inheritance tax bill.

Did you know... If you are self-employed, 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.

Did you know... by reviewing your Mortgage Protection policy, you may be able to obtain more cover and additional benefits for the same or reduced price than with your original policy.

Did you know... the application process has become a much easier process these days with the availability of editable PDFs and Docusign …one pro to come out of the current situation!

Did you know... For any change in lifestyle (e.g. 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.

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.