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

 

 

Cohabiting, Unmarried and Paying Life Insurance?

Life insurance for cohabiting but unmarried couples can be confusing.

unmarried couple choosing life insurance

Ireland, being the country that it is, has many tax rules and laws that we primarily mightn’t like but secondly, are totally unaware of.  I’ve been dealing with one such problem quite recently relating to how the revenue views the proceeds of a life insurance policy to a couple who are co-habiting but are unmarried.

In the census of 2015 we discovered there are over 140,000 co-habiting couples living in Ireland. Of those approx. 60% have children. The likelihood is that although these people are not married, they will have or will want to have financial protections in place such as life cover and mortgage protection, to ensure financial security for their family in the event of their untimely death. Makes absolute sense but the problem is, how will the revenue view such a pay-out if the worst does come to pass?

Most will believe they are leaving their partner and kids in a secure financial position but the reality can be very different. If you are in this situation you could be leaving your family with a significant inheritance tax bill without knowing it.

Allow me to explain. A co-habiting couple have a joint life insurance policy for €300k paid from one partner’s bank account. That partner dies so there is a €300k pay-out to the remaining partner as the remaining policy owner. As the couple were not married, the inheritance tax threshold is only €16,250 meaning the balance of €283,750 would be liable to tax at 33%. An unwelcome tax bill of €93,637 lands on the remaining partner’s doorstep, often with no means to pay it.

If the premiums were paid from a joint account they would still be liable for inheritance tax on half the proceeds of the life policy. Furthermore if the policy was set up on a single life basis and there is no will in place the proceeds would actually be paid to the next of kin and not to the remaining partner at all!

For married couples, however, any inheritance is deemed to be tax free so the issue only exist for cohabiting unmarried couple’s.

This unwanted tax bill is however entirely avoidable.

There is a method of setting up your life insurance in such a way that no tax liability is payable regardless of whether you are married or not. Each person simply takes out life insurance on the other i.e. on a “life of another” basis and pays the premium from their own bank account and income, the benefit would be paid out to the remaining partner of the policy without any inheritance tax owing saving most clients in this situation an absolute fortune.

If you are a co-habiting, unmarried couple it is really important to get in touch and have it reviewed as a simple change in the way your policy is set up could make all the difference to your partner and kids if the event you are trying to protect against actually does happen.

As always if you fall into this category please don’t just leave sleeping dogs lie, please get in touch and I’ll be happy to review your set up.

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