Welcome to the Financial Column in association with award winning company Money Plus
Following on from last week’s Q & A on Whole of Life cover and from a number of recent general life cover questions I thought that it might be useful to outline four “Golden Rules” which you should take into account when considering what life cover is most suitable for you.
The biggest mistakes you can make with life cover is not taking the time to sit down and understand exactly what you need. There are many life cover products which provide financial compensation to individuals and families in the event of death or serious illness and it can be difficult to know what you should have.
Many people make the mistake of focusing on mortgage protection life cover only – mainly because lenders insist on this type of life cover before giving you a mortgage. Mortgage protection is used to repay your mortgage in the event of either your or your partner’s (if a joint mortgage) death. However this cover only really covers your mortgage in the event of death only – the amount of life cover reduces over the term of the policy, more or less in line with your mortgage.
The following four rules should help to keep you on the right track in terms of having enough life cover to protect yourself and your family.
Don’t underestimate the amount of life assurance that you need.
A lot of people underestimate the level of cover that they really need to protect against the financial implications of the death and serious illness on your family. For example a €200,000 payout under a life assurance policy will last only 6 years for a household needing a monthly income of €3,000 to cover their living and other expenses. It’s important to work out how much you or your family will really need in the event of a claim.
Don’t rule out Serious Illness cover.
This cover, which pays out a tax-free lump sum in the event of being diagnosed with a specific illness covered by the policy, is often not considered to be a necessity. However it should be considered carefully so that, if you are unable to work and recuperating from an illness, that you have enough money to continue to meet your family’s financial needs.
Consider taking out pension term assurance if you are self-employed or in non-pensionable employment.
Pension term assurance is designed to provide life cover for people in non-pensionable employment and is structured to use the tax relief currently available under pension legislation. Premiums paid into this type of policy are eligible for tax relief at your marginal tax rate (up to certain limits).
Understand what source of income you would have if you were unable to work.
When deciding whether to buy income protection insurance which provides a regular income if you are unable to work due to illness or injury, consider how you would replace your income if this happened. Would you have enough savings and investments to cover this until you can return to work ?
Sick pay for employees (if provided) usually reduces after 6 months and stops completely after a year. State illness benefit is currently just €188 per week for eligible employees. Also, self-employed people don’t qualify for State illness benefit. Income protection cover (which is also eligible for marginal tax relief) could be worth considering for these reasons.
For detailed advice on life cover and other protection issues please consult Belinda McCauley at Money Plus, your local independent financial broker. Belinda and her colleagues at Money Plus, Bridge St, Boyle would be delighted to help you. Belinda can be contacted at 071-9194000/086-7847827 or by email: [email protected].