Protecting Your Young Family
Term insurance refers to life cover (or specified illness cover – more on this later) that will be paid out should you die within a specified period of time – within the next ten years, for example. In this event, your family will receive a cash lump sum. Specified illness cover pays out in the event of your being diagnosed with an illness covered in the policy during an agreed period of time. Most specified illness plans cover up to 50 illnesses. Some policies will make a partial payment to you should you contract one of a number of named less-serious illnesses. Specified Illness cover can be bought separately, or as part of a life insurance plan. For more on serious illness cover, go here.
When is term insurance useful?
Term insurance is useful to cover the period between your death/diagnosis and your children being financially independent. So, if your children are aged 12 and 14, for example, you may want to take out term insurance for ten years.
How much will term insurance cost?
The cost of term insurance depends on a number of variables including your age, health, the term, and the amount of cover you choose. It could be possible to get term insurance for as little as €x per month.
The Ultimate Protection For Your Dependents
A whole-of-life life assurance policy will cover you for however long you live (your whole life!), as long as you continue to pay into it. It’s the ultimate protection for your surviving family.
a. When is whole-of-life cover useful?
It is useful where you have long-term dependents, such as a sick or disabled son, daughter or spouse, who will outlive you It can be a useful way to pay for funeral expenses or inheritance tax. If you have a large amount of assets that you wish to protect against inheritance tax.
b. There are two types of whole-of-life cover:
Level Term – you pay the same annual premium from the time you take out the policy until your death and the pay-out will be the fixed sum you agreed at the beginning.
Reviewable – you may adjust your premiums at intervals and this will be reflected in the final pay out. Part of your premium is invested in index-linked funds, the idea being that it earns interest which will either act as a buffer fund into which the life assurer can dip as you get older before it needs to increase your premium. Should you cancel the policy, its value will be paid out to you.
Points to Note – with a reviewable policy, your premiums will increase as you get older. Some people find the increases are not affordable. If you stop paying into the policy, or pay less, your cover may be drastically reduced. There may come a point where you decide you don’t need it anymore – say in the case where you have no dependents – at which point you might consider converting it to a straightforward savings account. If you have a reviewable or guaranteed whole-of-life policy and would like advice, or if you want to take out whole-of-life cover and have some questions, don’t hesitate to contact one of our Expert financial advisers on 1890 942979.
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Is serious illness cover better than Income protection?
It depends. Serious illness or critical illness cover pays a lump sum as early as 14 days after your diagnosis and that is yours to keep whether you make a full recovery or not.
Income protection cover, on the other hand, gives you a monthly payment for the period that you are unable to work, or for a fixed period, depending on your policy. This payment may not start until several months after you are diagnosed.
Many people choose both – the serious illness cover provides a lump sum to handle immediate expenditure associated with your diagnosis, while income protection insurance makes sure there is money coming in to pay the bills while you are out of work.
WHEN I GET SERIOUSLY ILL
Serious illness cover, or critical illness cover, is insurance against your developing a named condition or illness that will drastically change your life. Should it be that you are diagnosed with one of the illnesses included in your policy – most policies cover over 40 illnesses or conditions – and provided you survive for two weeks following your diagnosis, the specified amount is paid out as a lump sum. Some policies pay out a smaller sum in the event that you are diagnosed with a less serious illness. Such policies list out these conditions.
Why take out serious illness cover?
The chances of surviving a serious illness such as a stroke, heart attack or cancer are so much higher now, thanks to advances in medicine. Living with a serious illness, however, can be expensive.
Aside from the cost of medicine and treatment, you will be out of work for a time, more than likely. The serious illness pay-out will be very useful in these circumstances. See also income protection insurance.
It will help you pay for adjustments to your home, your car and your lifestyle necessitated by your illness.
Where the cover has been taken out as part of a mortgage protection policy, it will take care of your outstanding mortgage in the event of your contracting a critical illness, which would be a huge relief to you.
POINTS OF NOTE
As you would expect, insurers ask you to complete a detailed medical questionnaire prior to taking out a serious illness insurance policy. Don’t try to hide anything when answering the questionnaire. It is really important that you disclose your medical history to your insurer. If you don’t, you risk not getting a pay-out when you need it most, due to non-disclosure.
Mortgage Protection – Essential For Home-owners
Mortgage protection cover is designed solely to ensure that your mortgage is paid off in the event of your death. It runs for the same term as the mortgage itself, and the cost of it decreases as the amount owed on your mortgage reduces.
When you take out a mortgage, your lender will insist on your having mortgage protection insurance – this is to safeguard the loan. Your estate will benefit from any additional funds left in the policy after the mortgage is paid.
It is important to point out here that you are under no obligation to take out a mortgage protection policy with that lender. The ‘shop around’ rule very much applies! You can also switch mortgage protection insurance provider to get a better deal.
So with mortgage protection insurance, you don’t need to worry about your loved ones having to repay your mortgage in the event of your death, but what about the scenario where you can’t repay your mortgage because you become so ill that you can’t earn an income? Mortgage protection is essential for anyone with a mortgage. If you fully own your home you may not need mortgage protection.
You can add serious illness cover to your mortgage protection policy. This will give you a cash lump sum should you be diagnosed with a specified serious illness. That way, you have a buffer to pay bills such as your mortgage even though you can’t work because of your illness. For more on serious illness cover (also known as critical illness cover or specified illness cover), See below for further information on serious illness
Point of Note: If you do not keep up your repayments you may lose your home!
Protect your Income Today
With Income Protection or Permanent Health Insurance as it is also known, you get a replacement income if you are unable to work due to accident or injury. It Provides you with up to 75% of your current salary until your expected Retirement Age should you be unable to return to work.
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Inheritance Tax Planning policies (Sec.72)
Revenue permits 2 kinds of Life Policies to be used to pay Inheritance/CGT without treating the proceeds as part of the taxable estate.
Section 72 policies are utilised to pay Inheritance Tax. These are life policies with a guaranteed premium so the premium remains constant. You can’t convert a current policy to a S72 policy; it has to be taken out for the purposes of paying inheritance tax. The younger you are the lesser the fee. A husband and wife must take out a joint plan.
Section 73 policies are utilised to pay Gift Tax. These are savings policies and must be in place for at least 8 years to succeed. The individual giving the gift owns the plan and must make payments.
A spouse can avail of a Spousal exemption. Sons, daughters, relatives and friends pay tax on all sums over their tax-free threshold. There are some tax reliefs available and it’s important that you are mindful of these when planning handover of monies.
CleverMoney the Financial Experts operates closely with you to assist your beneficiaries in paying their tax liability.