Should you add Serious Illness Cover?

First thing to note is that mortgage protection cover is simply a life insurance product. It will pay out on death only and is usually the cheapest policy available which is acceptable by the lender to drawdown your mortgage.
Often sales advisors in banks will offer you serious illness cover as an add-on to your mortgage protection. Of course this will drive up your premium but as a result will bulk up your cover. In addition to the insurer paying out a benefit in the event of your death, they will also pay out a benefit in the event of your being diagnosed with one of their listed serious illnesses.

On the face of it this is a desirable outcome of having insurance but my feelings on this are simply that while having serious illness is a good thing, I would always make my clients aware of where that payment would go in the event of them claiming.

The key point here is that your mortgage protection is required by your lender and crucially legally assigned to your lender. That means they own it. You pay the premium, they own the benefit. The insurer, should there be a claim on the policy, must pay the benefit to the legal owner of the plan and in the case of it being mortgage protection with serious illness attached means that the serious illness payment will not land in your bank account but the lenders bank account.

It will be used to reduce your mortgage of course but this misses the point. If you have serious illness cover it is designed to be used to assist you in the immediate aftermath of being diagnosed with a serious illness. It is designed to cover cost of living expenses, medical bills, home amendments and the like. If it reduces your mortgage from €300k to €250k it doesn’t do what it meant to do. Yes it will reduce your monthly payments but clients find it incredible frustrating knowing they had serious illness cover in place but they can’t have the cash.
My advice is to address the need specifically.

Take out a basic mortgage protection policy to assign to your lender. Shop around, or use an independent advisor to shop around for you.

Separately take out life insurance, income protection and serious illness cover. Again shop around as each provider will tell you they are the best.

This is designed to protect you and your family. There will be no need to assign these insurances meaning that crucially should you need it, there will be no surprises. You’ll get the benefit you paid for and there will be no one in the middle between you and the insurer when it comes to making a claim.

Thanks,
Nick

nick.lawlor@newbeginning.ie
01 524 0000

Mortgage deals leave concerning life insurance issues

In this week’s blog post I am going to address one of the most common problems I come across with New Beginning clients every day. Thousands of mortgage deals have been issued to clients in recent years and unfortunately the bank have mostly washed their hands of the problem changing your mortgage terms has on a client’s life insurance structure.

Most clients who have received a split mortgage, capitalisation of arrears, term extension or part capital and interest arrangement from their lender have left their life insurance unchanged. The banks have advised them to seek independent advice which is their way of saying “not our problem” but few have actually addressed this issue as they believe they have mortgage protection policy in place so feel there is no issue.

The problem simply lies with the fact that because your mortgage terms have changed, it is very likely that your life insurance should also be changed to match your new mortgage terms.

I will explain by way of an example. A client who has €300k of mortgage split into 2 parts, one part to be warehoused and dealt with in 15 years, the other part to be paid back as normal over the next 15 years. If this client has a normal mortgage protection policy in place to cover that mortgage debt, the life insurance benefit to be paid out on death is decreasing to zero over the same 15 years. It means that should the unfortunate actually happen the life insurance policy you thought would pay off your mortgage all of a sudden only pays off a portion of it. This means that you are not covering what you think you are covering!

Considering you are likely to be paying a premium every month to ensure that should you pass away that your mortgage will be cleared, it is quite likely that the further you are into your new mortgage terms the greater the unprotected debt remains.

The solution is a simple one and often no more expensive than you are currently paying. Simply replace your existing cover with two new polices which will match your new mortgage terms, the first addressing the warehoused part and the second covering the normal capital and interest part.

This life insurance structure change is something we are now specialising in and we feel this will become a bigger issue as time goes on. It is important to fix this now and ensure that the premium you are spending every month is doing what you think it is doing. The younger you do this the cheaper it is too.

Get in touch with me directly on nick.lawlor@newbeginning.ie if you would to chat through your own situation. That or call us in Dublin on 01 5240000 and ask for Nick or Kathy.

Chat soon,
Nick

What is Mortgage Protection insurance?

 

couple mocing into new home Mortgage protection insurance is a type of life insurance policy that is specifically designed around mortgages. The basis for this type of cover is to address the need mortgage holders have to pay off the outstanding mortgage balance should either of the mortgage holders pass away. Lenders have, for some time now, required this type of life insurance as the minimum level of cover to allow a mortgage to be drawn down.

A mortgage protection policy is simply a decreasing term life insurance policy. Its starts off at specific amount covering either one or two people’s lives. For example sake let’s say your mortgage was 250k over 30 years. You can then take out a mortgage protection policy for €250k covering life A and/or B. The amount of cover will decrease over the 30 year term to zero. These policies are designed to clear any balance of your mortgage at any time during the 30 years term should either policy holder pass away without leaving a huge amount of change!

These type of policies are cheaper than most other types of life insurance as the pay-out insurers are liable for reduces as you get older when statistically you are more likely to meet your maker! Various providers offer this type of cover, some offer discounts and others try and enhance the policy somewhat to make it more attractive. Shop around or get in touch and we can find the best provider and premium for you.

Thanks,
Nick

nick.lawlor@newbeginning.ie
01 524 0000

Why is everyone talking about pensions?

Perhaps you started to wonder, or perhaps you had far better things to be thinking about instead, but you might have noticed recently that there is an awful lot of attention being given to pensions.  Newspapers are highlighting stories; the pensions authority is running ads on Newstalk about employer’s responsibilities when it comes to providing pension access for staff and each and every pension provider is advertising through every medium they can find to highlight the value in paying into a pension product.

So why all the noise?

Well, 2 reasons really. The first is that this is what’s known in the industry as pension season. The time of the year where employed individuals and self-employed workers can write a cheque to their pension and write it off against 2015’s tax bill. An excellent and simple method of making a sensible financial planning decision that saves a good slice of tax while you are at it. For those who would like to do this, assuming you complete your returns online, you have about 10 more days to get this submitted so if you want to understand the tax benefits and are still considering putting a lump sum away for your retirement please get in touch with us asap. We can assist in getting this done for you in time.

The second reason and probably the more logical reason is that this deadline tends to bring the discussion about pensions back into the spotlight and with good reason. Allow me highlight a few simple points.

In Ireland today there are 5 people working for every 1 that is retired. In 25 years’ from now there will be 2 people working in Ireland for every 1 that is retired. A massive increase in retirees.

The social welfare pension is amongst the highest in the EU and couldn’t be maintained at its current levels in years to come considering point 1 above.

Our debt levels per head of population are amongst the highest in the EU.

Life expectancy is continuing to rise.

State pension age is continuing to rise.

Costs of living are continuing to rise.

The cost of health care continues to rise.

Pensions are optional.

The simple reality is that we all must start to believe that pensions, complicated as they can be, are a now an absolute must. Like any savings habit, just get started. Take the plunge. I have never met anyone ever, who was upset they had arrived close to retirement with a pot of cash. The only regret I ever hear from clients is that they wish they had more, and they wish they had started earlier.

Please take note when I say that the tax relief available is generous, the state can only be responsible for providing so much for you in your years to come and you won’t regret it. In fact, once you start saving you’ll probably quite enjoy it.

And please always remember it’s never too late and please don’t put this decision on the long finger. Having money when you go on the longest holiday of your life is surely something that has to be considered a necessity.

Get in touch with Nick Lawlor today on 01 531 0571 or nick.lawlor@newbeginning.ie to start your retirement planning today.

Post Retirement Options and Debt

post-retirement couple assessing their finances

When you approaches retirement there are serious decisions to make. The choices you make at retirement can have lasting effects on your pension savings and how you can access them into retirement.

The drawdown options available to you at retirement can be complicated even more by having a mortgage debt issue which needs to be resolved. So allow me explain where this can get complicated.

TAX FREE CASH VERSUS ANNUITY

If you are entering an insolvency or bankruptcy process you must fill out a Standard Financial Statement that lists your assets and your incomes.

Assets are typically at serious risk of being used to pay creditors before any deal is done or be lost to the Official Assignee if entering a bankruptcy process. Income however is allowable to a certain level.

So when you are deciding between having accessible cash or an income for life the decision of which to choose is likely to be very different should you be considering a debt process. You will need to seek advice if you are approaching this juncture.

AMRF VS ARF

An AMRF is a retirement pot which is locked away until a client reaches 75, unless they show they have a guaranteed income for life in excess of €12,700 (currently). The first €63,500 of a client retirement assets after the lump sum is taken must be invested in an AMRF if they do not have this guaranteed level of income. An ARF on the other hand is fully accessible to the clients and can be drawn down at short notice.

The rules surrounding AMRF’s have changed recently. Previously you could access any amount over the €63500 so any growth or interest earned could be taken subject to tax. Now a client can only take 4% per annum regardless of the AMRF’s value.

So how does this affect clients entering a debt process? Often clients would like access to their AMRF to help them pay down their debts but believe they can’t have access to it. This is true but an AMRF can be turned into an ARF if a client can satisfy one rule and that is if they can show a guaranteed income for life in excess of €12,700. Often a client will be in receipt of the Old Age pension from the state of circa €12000. So all a client needs to do to convert their AMRF into an accessible ARF is to buy a small annuity which will deliver income of €700 per annum. Crucially this will unlock the remaining AMRF allowing them access to their funds which can then be used to address short term needs.

CONCLUSION

These are just 2 of the many pension related situations we come across everyday so please just get in touch with me directly if you have any pension related questions that are concerning you.

Now for the disclaimer. Pensions are very complicated and each individual case should be assessed on its own merits. The rules are there to be applied and used for each of us so please take advice on your situation before making any lasting decisions. Finally if you are considering entering a debt negotiation or process please consider your pensions assets and what form they are in. Your pension assets could be at risk of being lost against your wishes or indeed could be used to help you address your debt but pension planning in advance is vital.

If you would like to discuss your own situation, please feel free to get in touch with me directly on email on nick.lawlor@newbeginning.ie or contact the office on 01-5240000 and I would be happy to look at your situation to find out.

Hold on to your Pension!

New Beginning have for years advised clients on their debt options and since we have added a regulated financial advisory service to our offering one particular issue comes up time and time again.  What will happen to ≠my pension if I go bankrupt or if I enter an insolvency process?

Well, bear in mind that all situations deserve their own individual attention, but I can give you some guidance on how pensions are generally treated.

Pension money is ring fenced insofar as it is not readily available. If you are about to retire or indeed could retire in the next 5 years it is very important that you consider what form your pension assets are in. Pensions come in various shapes and sizes and as such it is vitally important that your pension is structured in the most favourable way for you to retain control of your retirement savings.

Pension’s law in Ireland allows client’s access to their retirement assets from the age of 50 all the way up to 75 depending on the plan type you are in. Now if you happen to be in a pension arrangement that allows access to your money at 50 and you are approaching or over 50, then it might be advisable to move it to a different pension arrangement that doesn’t allow access until you reach 60 for example. Indeed you might simply be able to change the retirement age of your existing plan with the stroke of a pen. This could mean the difference between holding onto your retirement savings or not.

Also consider what form your pension is in? Is it a cash fund or is it income? Reasonable Living Expenses guidelines allow clients to have a certain amount of income but not cash assets. If you have €200k of a fund at retirement, this could be converted into an annuity which will deliver a client a regular income for life. Many would consider the annuity rates today to represent bad value for money, and I would absolutely agree with them. However if I faced a decision between losing all of my €200k or keeping an income of say €10k every year for the rest of my life, all of a sudden an annuity starts to look like a very attractive option.

There are many different scenarios and many different solutions. Far too many to cover here. But in summary if you are considering entering a debt process and have a pension fund built up, it is imperative you seek advice. It could be the difference between you holding on to your pension or losing it in its entirety.

If you would like to discuss your own pension situation, please feel free to get in touch with me directly on email on nick.lawlor@newbeginning.ie or contact the office on 01-5240000 and I would be happy to look at your situation to find out.