Life Insurance Uncovered

Life insurance was first designed when communities back in Roman times used to club together to help a family out when the mother or father passed away unexpectedly. Over time, communities would start putting a few quid aside every month to build up a community pot of cash for unexpected deaths of members families.

 

And so, life insurance was born. The life insurance industry today is a multibillion euro industry and the numbers behind it are a little more calculated.

 

Now it’s hard to go to work without hearing how mortgage protection is not life insurance and how one company is cheaper than the other.

 

Let’s deal with the numbers behind it first. Life insurance is calculated product really. And how life insurance companies determine their price is similarly calculated.

 

Life companies look at the death statistics in a country year on year and determine a probability of a client’s death accordingly.

 

Let’s take an example.

 

A 45-year-old female wants life insurance for 1 year of €100k. The death stats show that only 0.0015% of 45-year-old females die at that age in the country. So, the starting price for this level of cover will be €150.

 

Then a life company will add profits, administration, margin for error, and so on and the price may end up being say €225 per year. The life company then hopes to get thousands of similar lives and assuming the death trends continue – they make money.

 

So, what are the factors that affect the price of your life insurance. Let me list some of these for you.

  1. Age – how old you are when you take it out is a big one. The younger you are the cheaper it will be.
  2. Sum Assured – This is the obvious one, the more cover you want the more its costs.
  3. Health – Prices for healthy people are less than for those with medical conditions.
  4. Loadings – Life insurance companies will attach loadings or price increases for those who have medical conditions but importantly different life companies attached different loadings so don’t just accept what one provider says. Shop around.
  5. Smoker status. – Premium increases for smokers are significant. You are considered a non-smoker if you have been off cigarettes for 12 months or more.
  6. E- Cigarettes – Some providers consider e-cigarette smokers to be non-smokers, some consider them to be a half smoker and others attached full smoker rates. If you are an e – cigarette smoker then let us know.
  7. Term – The number of years you want cover for will determine the price.
  8. Plan type – Life Insurance comes in two general forms, guaranteed and reviewable. Guaranteed plans have their premiums fixed from the start offering certainty. Reviewable plans allow the life company to amend the plans price as you get older so future prices are unknown.
  9. More plan types. Life insurance plans can increase, decrease or stay level. They can have extra benefits and yes, you guess it, these all affect the price.

 

So, there’s plenty in this as you can see.

 

Taking all of the above factors into account means there is absolutely a need to review your life insurance set up. If any of the above have changed for you then you should review this. If you mortgage amount has changed, if you have stopped smoking, if you are unmarried parents, if you have a reviewable plan.

 

Please take the opportunity to look at this as it is pointless paying for something that doesn’t do exactly what you want it to do.

 

If your circumstances have changed at all then I am happy to rule the roost over this and review it for you.

 

Just get in touch on 01531 0571 to arrange a chat or email me on nick.lawlor@newbeginning.ie and I’ll help if I can.

 

Chat soon

Nick

 

 

Court Directs Debt Write Down on Family Home Mortgage

Earlier this month a case came before the Courts in Dublin involving a borrower who had significant arrears on her home mortgage with Permanent TSB. The borrower had other unsecured debts as well.

The full mortgage was €333,785 and the value of the borrower’s home was €160,000. The interest rate on the loan was 3.25%.

The borrower had met with our Personal Insolvency Practitioner who had proposed the following arrangement:
• Write down of mortgage by €173,000 from €333,000 to €160,000
• Continuation of interest rate and term
• Write down of unsecured debt by 92%

PTSB objected to this proposed arrangement and the matter came before the Courts where judgement was delivered early this month.

PTSB raised several objections.

The primary objection was around an alternative offer they made which involved ‘parking’ €97,000 of the debt at 0% for the duration of the loan. The monthly payments under the PTSB proposal were €1121 while the monthly payments under our proposal were €924.

The Judge expressed concern as to how the borrower was going to afford to pay €97,000 at the end of the mortgage period when she would be 71 years of age and her working life would be over.

Balancing both positions, and taking account of PTSB’s argument that it was being unfairly prejudiced, the Judge directed that the proposal made by the Personal Insolvency Practitioner should come into force.

The position for the borrower now is as follows:
• Her home mortgage is sustainable and will be fully cleared at the end of the term
• Affordable payments will be made to unsecured creditors for a period after which the balance (92%) will be written off in full.

The position for PTSB is as follows:
• It has a long term, sustainable, secured and performing loan at an attractive interest rate which is an excellent asset on its balance sheet. Furthermore, it no longer needs to spend resources on arrears support or on enforcement.

Is Mortgage Protection and Life Insurance the same thing?

You’ve probably heard the ads on the radio asking you whether you have life insurance or mortgage protection. What are they talking about and should you bother checking?

Well, allow me to explain.

Mortgage protection is simply a name given to type of life insurance that decreases over time alongside your mortgage as you pay it down. It starts at say €300k (if that’s what your mortgage amount is) and reduces to zero over the same period of time that your mortgage is due to run for. If there is two of you on the mortgage then your mortgage protection will have to include the two borrowers but the life insurance will only pay out on one of you dying, whichever one of you dies first. Fun stuff I know! The cost will remain fixed for the full term of the mortgage too even though the cover is reducing.

Being honest it’s not the best value type of life insurance available to you, but it conveniently does work well beside your mortgage. However, it can cost just a little bit more to have a far superior policy that doesn’t decrease and pays out in the event of both of you passing away which means that you are insured for double the amount with the benefit remaining the same throughout the term.

I looked at the cost for client last week and their bank had quoted them €62 for a joint life mortgage protection policy. Whereas a dual life (double the cover) policy which stayed level throughout the full term was only €71. Spending the extra €9 got these clients a far better policy.

Life Insurance which isn’t designed to be mortgage related tends to be better value in my humble opinion. This type of life insurance is not linked to your mortgage, so it is designed to provide financial security to your family in the event of you passing away.

Now this is the interesting bit if you do pay life insurance. This is the industry knowledge bit that allows you to get one up on the lender that sold you your existing life insurance policies.
1. Banks are tied agents, so they can only advise you on one provider of life insurance. That provider tends to not offer discounts to its bank customers as they have a captive audience.
2. There are several providers of life insurance in Ireland and the ones that aren’t partnered with the banks will do deals to get your business. This means that the same thing you pay for today could be 15% – 20% cheaper elsewhere. Well worth a look.
3. Set up is crucial. If you have an old mortgage protection policies it is fairly likely that it could be replaced with a far more beneficial policy for a very similar premium by using some of the discounts that are available, but the setup is crucial. Get this bit right!

When we set up New Beginning Financial Services one of the most important things we did was that we retained our independence. We are not tied to any one provider and as such we take advantage of the discounts that aren’t available elsewhere. We get paid from whichever provider we use, which means we don’t have to charge you fees directly so no charge.

We have been very busy recently changing client’s life insurance set up and in every single case we have improved a client’s finances.

As always, we would be delighted to help you too so please just send me a quick email on nick.lawlor@newbeginning.ie or call Kathy on 015310571 and I’ll call you back.

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Payments Under Personal Insolvency

Some people express concern about entering an Insolvency Arrangement which will last for 6 years. During that period, the debtor will be subject to annual review, meaning that if household income increases there may be increased payments required towards the arrangement.

In those circumstances, the debtor feels that he is still under supervision and not free to start again.

While it is true that where a PIA or DSA provides for payments over 5 or 6 years there are annual reviews, the arrangement can define what will happen in the review.

For example, it could provide that the first increase does not alter the payments and thereafter, where income increases beyond an amount, an agreed portion of that increase will be used towards increased payments. We have seen cases where it has been agreed that an increase of up to €500 per month will not change the terms of the agreement and thereafter 50% of any increase will be used towards increased payments.

These types of arrangements give the debtor an incentive to increase income while at the same time being fair to creditors who have taken a large debt write down.

It is also the case that many people’s income is unlikely to change dramatically. In cases where people are in employment it is relatively easy to determine income into the future. In those circumstances, the debtor really sees the payments as an affordable loan payment which will end in a defined period of time.

All this being said, it is always better, where possible, to agree a lump sum amount so that the arrangement comes to an end quickly and the debtor is free to move on unhindered by past debts. The lump sum could be sourced from family or friends and could be repaid over time.

Where lump sum deals are involved it is generally expected that the monies are paid within 6 months of the arrangement coming into force. But once the payment is made the remaining debt is written off in full.

When determining the amount of the payments or the lump sum regard is had to the Insolvency Service’s guidelines on Reasonable Expenditure needs. Information on these amounts can be found on the ISI website.

The amount is dependent on the composition of the family but taking a family of 2 adults and 3 children the system would say that the minimum reasonable expenditure needs of the home are €2700 plus mortgage or rent costs. This would increase where extra costs are involved such as child care or medical expenses. Assuming mortgage costs for this family to be €1500 the after-tax income would need to be €4200 before any other debt is paid. Any amount over and above this would constitute the basis for calculation of payments.

Where anybody is in mortgage arrears of where debt presents a difficulty, they should meet with an expert and learn about the options that are available.

3 Money Saving Tips and Tricks

As we enter the summer months, the evenings are long and holidays are close at hand it is often hard to pay any attention to your finances. And rightly so, I am a big believer in taking time to recharge if at all possible.

So, with one eye on summer holidays I decided to highlight just 3 simple money saving tips that all of us can utilise that we often overlook.

1. Tax

So, for anyone who pays tax there are some tax savings tips which we can use to reduce or save tax. We can also claim tax back for the last 4 years, so if any off the below relates to you then you can claim back to 2013 and get a refund from the revenue for all the years since.

a. Did you get married? – If you did get married then you can mix and match your tax credits and high rate tax cut off points, so if either you or your spouse is earning less than €32,800 and the other is earning more than €32,800 then you can adjust your credits and/or bands and reduce your tax bill.
b. Medical and Dental Expenses can still be used to reduce your tax bill. You get 20% of the value of your expenses refunded to you if you submit a medical expense’s return to the revenue.
c. EIIS Investments – These are investments that qualify for 40% tax relief over 4 years. Rental Income and ARF Income can used here too making this type of investment very attractive for anyone with rental/pension income. Tax relief is claimed at 30% in year 1 and 10% in year 4. So, an investment of €20k for example only costs an investor €12k once the tax relief is factored in.

2. Insurances Costs

The costs associated with your mortgage protection and your life insurance policies should be reviewed, and we are happy to help in this regard as we have access to all the providers costing in Ireland.

The insider knowledge here is that these providers want more business. To attract more business, they try to either improve their product or reduce their price. For example, Zurich, Royal London and Aviva are offering discounts on their protection products and these discounts are deducted from the cheapest premium available on the market.

If you took out your mortgage protection, life insurance or serious Illness cover with your bank its very likely we could save you money every month going forward.

3. Pensions

Pensions, yes you have heard me bang this drum before, but they do make a whole lot of sense and they do save you a whole of money!

Pensions still allow for generous tax relief at your highest rate of tax so either 20% or 40%. Over a career not only will a pension save you a small fortune in tax that you otherwise would have had to paid to the revenue but it saves it for a time when you will need it most, when you stop earning an income!

Pension can be paid monthly or indeed can be paid as a lump sum and against last year’s tax bill so there are no excuses, pensions just make sense.

If you need help with any of the above please feel free to get in touch. As always, we will be happy to help if we can.

You’ll get me on nick.lawlor@newbeginning.ie or call Kathy on 01 531 0571.

Chat soon,
Nick

Opportunities to Refinance

New Beginning Funding’s ongoing market analysis shows the high demand for commercial property, SME and development funding as the trend of overseas funds seeking liquidation or refinancing of distressed portfolios is continuing.

We are also seeing a marked increase in the number of commercial borrowers seeking funding for regular commercial property acquisition. Available funding is still targeting transactions in excess of €1m in main urban centres, and options for smaller, non-central, transactions remain scarce.

Funding for SME’s remains difficult to source but New Beginning Funding is in contact with pillar Banks and there does seem to be a growing appetite to fund into the SME sector, including operating businesses.

New Beginning are happy to discuss your requirements and suggest funding options and best ways to approach potential funders.

At New Beginning Funding we have developed strong relationships with a number of key lenders across the market and our funding facilitation services offers commercial borrowers a bespoke service which sources the best funding options, with transactions individually structured to offer most value to prospective borrowers.

We can source funding commitments, based on the specific needs of the borrower, in a matter of days. This means that clients avoid being forced to sell their properties, and with the assistance of New Beginning Funding, can access individual loan structures which are sustainable over the longer term.

New Beginning Funding is looking to assist individuals with borrowing requirements of over €1m in sourcing a range of funding options, including refinancing, to enable settlement of stressed exposures. We are also happy to discuss borrowing requirements with SME’s and can source a broad range of funding options, including, term loans, bridging and mezzanine facilities, development financing and larger commercial facilities.

You can email me at john.ryan@newbeginning.ie or call me on 01-5240000 to discuss options that might be of help to you.

Good News on Personal Insolvency

This month saw several very positive developments in Personal Insolvency.

The High Court dealt with an appeal by a couple where KBC had rejected their proposal for a Personal Insolvency Arrangement. The couple owed €285,000 to KBC on their home mortgage and their home was worth €105,000. The proposal was that the debt would be written down to €120,000 and then extended over a longer period making the loan sustainable. KBC objected but offered a split mortgage where €135,000 would be shelved for 23 years on 0% interest.

Judge Baker in the High Court rejected KBC’s position and ordered the write down.

What is interesting about this case is that the High Court directed a substantial write down on the mortgage debt even though the bank had offered a split. The Court was concerned to bring certainty to the couple’s position and the continued existence of a debt – even shelved – did not achieve this.

This is one of a growing number of cases where the new laws give a Court power to enforce a Personal Insolvency Arrangement once the deal is found to be fair and equitable. The bottom line is that the family have a long term sustainable mortgage and all their other debts have been dealt with also.

The Insolvency Services have also recently released figures on debt resolutions.

Applications for Personal Insolvency Arrangements are up 128%. In over 90% of cases the home is saved. 30% of all cases involve mortgage debt write off with average write offs of mortgage debt now exceeding €90,000.

It is very clear to us that the law is now very much on the side of the struggling home owner. The key for a borrower in arrears is to make what payments you can and to seek advice from a Personal Insolvency Practitioner.

And the good news is that the advice will not cost anything.

Call us today on 01-5240000 for more information.

What is an ARF?

An ARF of all bloody names!

In an industry where jargon is one of the biggest customer complaints reported, one of the main options you have at retirement is to move your life savings to a structure whose name means nothing at all to most normal people outside of the pensions industry, an ARF.

Ok, well allow me attempt to demystify one piece of the pensions world for you as best I can.

An ARF is short for an Approved Retirement Fund. These post retirement account, for want of a better term, were introduced in Ireland in April 2000. Before this date your choices at retirement were limited to taking a tax free lump sum first and foremost and then use the balance to buy an annuity which, as I described in my last blog, were an incredibly limited way to spend your life savings.

An ARF crucially allows you retain control of your retirement savings. Once you have taken your lump sum, and assuming you met certain criteria, you can then transfer the balance of your money to an ARF. You can spend it how you like, invest it how like and place with whichever provider you like.

Pensions rules insist that you draw down (or at least the revenue will tax you as if you did) at least 4% per year between the ages of 61 and 71 and 5% thereafter, and these withdrawals are subject to income tax and levies as any other income would be. If you are lucky enough to have a pot bigger than €2million that withdrawal requirement increases to 6% per year.

Crucially you can invest in thousands of different things, so if you have a decent retirement income it’s possible to maintain the value of your ARF by simply earning a return of 4/5% per annum on your ARF. In this case, instead of your retirement savings being exhausted over time you could preserve it to form part of your estate. This is a crucial difference to how an annuity would work, as an annuity would never pass on to the next generation in any circumstance.

This point can be reserved too of course. If you draw down 20% per year your ARF can run out very quickly indeed and you could be faced with having no back up money left should you need your ARF in the years following your retirement to survive, so buyer beware too. It’s not all rosy, so your situation does need to be examined on an individual basis.

The tax treatment of an ARF as part of inheritance is a whole different kettle of fish and far too complicated to get into here so just pop me a quick mail if you want to know the detail around this. Also the criteria around how to allow you access to an ARF are reasonably straightforward and I will outline these next week in my next blog to give you some clarity around these decisions at retirement too.

In summary, I like ARF’s. I prefer clients of mine, assuming they agree with me on certain key principals, to consider ARF’s strongly. The control point for me is a big one. The ability to retain the asset you have built up over a very long time is a huge consideration and the ability to pass this asset on to your kids is significant. There are naturally numerous factors to consider and far too many to cover here, but often the ARF comes out on top once we look at all the options with our clients.

An ARF, of course, won’t suit everyone either, so please get in touch if you are approaching retirement. The decisions made around retirement are lasting ones so each option needs to be considered carefully and each client’s attitudes need to be examined first and foremost before we make a retirement recommendation.

As always, we are happy to help and even if you have any specifics questions about the above feel free to send me a quick email and I’ll be happy to help if can!

Chat soon,

Nick
Nick.lawlor@newbeginning.ie

Investment Funds are Key to our Future as a Society

Last week Ireland sold an inflation linked bond worth €609 million euro. The buyers of this bond will get a return of 0.25% for 23 years. As inflation goes up or down the return will follow.

Think about this for a second.

International investors are willing to give Ireland huge sums of money at tiny returns. The funds are secured by nothing more than Ireland’s word – we will pay the coupon and we will return the funds in 23 years’ time.

Now look at our need for infrastructure – housing, hospitals and water systems to name but a few. Each of these is mission critical – in that we absolutely need the infrastructure. The welfare of our society is dependent on it.

Ireland is constrained in what it can borrow due to proper (in my view) rules preventing governments from borrowing recklessly. Governments do borrow recklessly by the way!

But pension funds and other investors can place money into mission critical infrastructure and where the State is involved, even tangentially, the rates will be low. Semi state bodies or local authorities are the State acting at arm’s length.

Imagine an arm of the State (not the State itself) were to borrow money on the markets to put into real infrastructure – social housing for example.

Housing, built properly, will last for 100 years, and more. At current rates the average house (€250,000) at 3.5% would cost the State €730 per month. Taking a family living on social welfare only, the household income will be conservatively €2000 per month. It is generally expected that the family will pay 10% of their household income on rent meaning the overall cost to the State in providing a €250,000 home to that most vulnerable family could be as low as €122 per week.

This situation for the State becomes even more improved by the fact that over decades the property will increase in value so that the State body becomes asset rich meaning more funds to provide more housing. All the while pension funds receive a return on their investment – and if those pension funds are Irish, the benefits are directed into the economy.

The biggest problem we face is ideological, which generally comes from people not willing or able to think beyond a cliché.

As with the water debacle there is a populist view that taxation can pay for everything – even though we know from bitter experience that this is false. Extra taxes cause a drag on the economy and when downturns come – as they do – the money dries up and there is no investment.

But pension funds, endowment funds, insurance funds, and the rest, are looking for homes. Ireland has, if nothing else during the crash, proved that we will pay our debts and so we can borrow at low rates.

These funds provide a huge opportunity to create the infrastructure we need – delivered today and paid over long periods of time.

The so-called vulture funds which, ironically, are financing most of the developments in Dublin today, are monies from ordinary people in far flung parts of the world. We could and should be doing this ourselves.

The harsh reality is that if we continue to be burdened with 19th century thinking we are going to get 19th century infrastructure.

Our thinking needs to change.

Know My Retirement Options BEFORE Retiring

“If I was a Financial Adviser I would… know my retirement options BEFORE retiring”

Decisions around retirement.

So, you are nearly there. Finally.

You are about to arrive at retirement when your days will be filled doing things you really want to do. Ah it sounds like bliss. Travel, golf, time with family, the list goes on.

Just the small matter of figuring out how much money you will have to eat, travel, pay bills, and tick items one by one off your bucket list. And then to do all this on repeat for lots of years ahead.

Most of us will have some form of pension in place. It might be small or indeed it might be substantial, but when it comes to drawing down your pension you will be presented with options. Lots of them.

Once upon a time pensions were simple things… ok simpler things. You got a lump sum tax free and you then got a regular income for the rest of your days, no matter how long that happened to be.

Now there are lots of choices and options and plenty of jargon to go with it.

Tax free lump sums amounts can vary in size but are limited. You can have multiple pensions with a variety of employers and providers. You will be faced with choices between Trivial Pensions, annuities, Approved Minimum Retirement Fund’s or simply an Approved Retirement Fund. You will also be faced with a variety of providers, charges and investment strategies. Then there is the old age state pension too. When will that start and how much will that be?

You know these decisions are important and but you also know they are complex. You will receive a benefit decision form from your pension provider. This will list the various options available and ask you to decide.

Each option has implications and some of these options, like an annuity for example is not reversible. So, my advice is to please beware, you must make an informed decision.

Normally at this point I would start to explain each of these options but the reality is that recommending an ARF to one client may be the best advice possible for that client but an annuity for another may absolutely be the way to go.

Each person’s situation is very different and really, it’s the requirements and needs of each client individually that drives the decision about what they should do. As a result, there is no point explaining the ins and outs of each product, we must start this process by looking at the client, not the pension fund. It’s the client’s circumstances that drives the decision around how your pension should be drawndown, not anything else.

Pensions are limiting and worthwhile all in the same breath. Too often we have come across clients who made decisions around retirement that did not suit their needs and could not be undone.

Please, if this is you, and you have retirement on the horizon, just get in touch because understanding pension lingo is like trying to understand a different language. And when you are making decisions regarding your future it’s probably better to use an interpreter than take a punt on it!

As always, if you would like to run anything past us, you can contact me directly on nick.lawlor@newbeginning.ie or on 01 531 0571.

Chat soon,

Nick