Examples of cheapest vs most expensive options:
Mortgage protection
A 35 year old couple need life insurance cover to cover their mortgage of €250,000 which reduces over the 35 year term of their loan.
A salesperson could convince them of the need to spend €53.09 a month for a simple life insurance policy rather than swaying them from a cheaper mortgage protection policy costing €29.43 a month. If that same sales person gave up the commission they received for setting up the policy then the couple need only pay €23.55 a month.
Tips:
- Even if you already have your mortgage covered check prices today as they have reduced and money is better off in your own pocket.
- If your loan is a repayment type loan – i.e. capital and interest then the cheapest form of life cover is mortgage protection.
- Remember you do not have to take out insurance with your lender. It is your right to shop around for your own cover and this is the law so you shouldn’t feel under any pressure.
- If you already have cover and want to see if it is competitively priced then the amount of cover you need to get a quote for is the current outstanding balance on your loan (not the amount when you took out your loan) and the term of the policy only needs to be the remaining term of your loan.
- An authorised financial adviser will look at the whole market and not just a few insurers. They will also be in a position to give up commission so you’ll get a better deal.
The same couple then reviews their need for life assurance
Life Assurance
A 30 year old couple with two children have calculated they would need €50,000 of income each year in the event of either persons death and they would need this income to continue for 20 years until their children become less dependant. They have calculated they would need €755,000 of life assurance cover.
They have been offered a policy they consider good value for money at €89.84 a month for both persons but before they sign up to it they decide to shop around. They are amazed to get a quote for €61.30 a month which covers their requirements. Enjoying such success in saving money they decide to chance their arm and ask for a commission discount and are offered the same policy for €55.17. They gently push further and the price drops to €52.11. Only when they can’t get below €49.04 do they call it a day. Their total saving over 20 years was €9,792.
Tips:
- A fee based authorised adviser is a good place to start. In theory stripping out commission should get you more impartial advice and if the commission is reinvested for your benefit it should reduce the price you pay for cover even further.
- By all means avail of a free financial review offered by your lender or bank but don’t make any purchasing decisions until you have gone to someone more independent.
- Before purchasing a product ask these questions (a) What am I covered for and how long? (b) Is this cover necessary for me? (c) Could the premium increase for any reason and (d) When could my claim be refused?
- When you are calculating your needs for life assurance remember to find out about any death in service benefit you may have with your employer.
- When structuring family protection for both married and non married couples check with your solicitor as to the best way to set up your affairs so those you want to benefit will be those that benefit and that there are no tax implications.
Tips for reviewing cover:
(a) Get independent financial advice:
Tip 1 – There are two ways to judge how much life assurance you may need.
The first way is to calculate the replacement income your family would require in the event of either parents death. Using this method the replacement income you would need dictates the level of cover you may require which in turn dictates the level of premium you would have to pay.
Remember, to allow for possible additional payments (such as pensions or social welfare payments) will may be available in the event of your death, you should take this into account when calculating the amount of your income you need to cover.
The second method is quite simple in that you purchase as much cover as you can comfortably afford for a given monthly outlay. An insurance broker will give you a fair indication of the amount of cover a given monthly premium will produce.
The types of life policies people are requesting quotes for this year up to 26 August are:
Life Assurance 48%
Mortgage Protection 46%
Serious Illness Cover 6%
mortgage protection will not cover dependants and death in service benefit generally only provides between two and four times salary, which may not be sufficient for example to provide financially for young dependant children right up to completion of third level education.
Things to consider in deciding what level of cover you may need will include for example the number of dependants, whether there is a second earner and the level of cover they require, the level of cover required for a partner working in the home, the cost of providing for childcare as well as any long term borrowings or loans
What am I covered for and for how long?
Is this cover necessary for me?
Could the premium increase for any reason?
When could my claim be refused?
When structuring family protection for non married couples it is important to remember that cohabitants have no automatic rights to their deceased partner’s assets under the Succession Act. So if your cohabiting clients have no Will in place, the proceeds of a life assurance contract could end up in the hands of the deceased’s ‘next of kin’, their parents or brothers and sisters, if the arrangement is not structured correctly.
With the exception of the family home, the total value of all assets passing between two people who are not married or civil partners of each other 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. So, where a cohabiting partner inherits other property, including a death benefit under a life assurance policy, the €16,604 stranger threshold could easily be exceeded. This could have a significant impact on the sum assured received from a life assurance policy.
(b) Do it yourself:
Here are a few tricks Irish Insurance web sites are trying to use to rip you off on your purchase of mortgage protection and life insurance:
- If you have a cheaper policy and they can’t beat it on price they sell you a dearer policy but to get you hooked, they offer you a one off cash incentive. You are then locked into a dearer policy than you had for the rest of the term. Calculate how much it really cost you to switch.
- They highlight the discounted amount you pay for your policy in a way that leads you to believe it is the actual annual premium and its going to be like that every year. You believe the discounted amount is the annual premium and you don’t realise it is only a first year offer and after that you will pay the full non discounted premium.
- They ask you for precise details of the cover you require and they use this information to give you an attractive ‘approximate price’ of what you can expect to pay. They then warn you not to buy online but they go on to sell your precise details to an insurance broker on their panel who then contacts you to sell you the policy.
- They arrange a policy for you this year then they diary a call to you next year where they have a special offer with a different insurer on a dearer policy.
- You ask for say a 20 year policy and they show you a really attractive low monthly premium but they don’t make it clear that the amount you pay is reviewed in future years so that the amount you pay increases.
- They guarantee they are the cheapest and they claim they offer complete independent advice. Some firms don’t show how they are regulated and that’s against the law.
- They show you a discounted annual premium, then they divide that figure by 12 to make you think you are getting a lower monthly premium than anywhere else. Some even show the discount price and divide that by 12 as if it is the real monthly premium.
- Some fabricate the number of insurers they are actually dealing for the product you are interested in purchasing so you think they are searching the market to obtain your quote. For example they may say they deal with 14 insurers when for mortgage protection they only deal with 5. Check their terms of business.
- They quote a premium that is attractive but with such strict acceptance criteria that you’ll find it very hard to get it at the price shown. While they have you they then offer you a more expensive policy.
- They will arrange a policy where the amount you pay is increased in later years.
- They quote you an annual premium for the first year but then in year two they switch you to a dearer monthly premium.
- They don’t tell you what the premium is they just show you the discounted amount.
- They offer serious illness cover but don’t disclose the definition of the illnesses covered.