15th January 2021
Life Insurance ……………….Where Do I start!
It’s a bit of a tall order trying to cover all the P’s and Q’s relating to life insurance as there are a fair few ingredients but we will try and ‘mark your card’.
Realistically the first- time life insurance ever appears on our radar is when we start thinking of buying a house or apartment and then embark on what to date (although it is changing!) is a relatively long and arduous process of applying and obtaining a mortgage from the bank, building society or credit union.
At some stage of this journey, you will be told you need to have life insurance in place that covers your mortgage loan so that if you or your partner ‘pop your clogs’ over the term of your mortgage loan – the bank can rest easy knowing the life cover that you put in place to cover the term will kick in and clear it. This life cover is Mortgage Protection Insurance and it is the simplest and cheapest life cover available on the market. In technical jargon it is decreasing term cover because as you pay your monthly mortgage loan repayments – your loan starts reducing and your life cover does likewise, in tandem with it. For example if you and your partner borrowed €250k over 20 years and in Year 10 your partner sadly was run over by a bus – your mortgage protection policy would kick in and pay your mortgage lender the €125,000 outstanding and unlike your partner whose loss you lament – you are grateful however that your mortgage loan has also departed.
Some cardinal rules to keep in mind when taking out mortgage protection cover..
• Don’t go with your bank no matter how much they pressurise you as all banks are tied to one life company. All the banks bar BOI (who are tied to New Ireland) are tied to Irish Life so you are not getting the best and most affordable cover. We did the first Irish survey in September 2018 via experts Ireach, on how the banks sell this type of cover and surprise surprise we found that 47% or 3 out of 5 Irish people surveyed said they felt that their bank put pressure on them to take out their mortgage protection policy with them.
• If you and a partner are taking out mortgage protection cover, make sure and take it out on a Dual Life basis as you get far more cover and its marginally (and we mean marginally!) more expensive than the normal and traditional Joint Life cover. In simple terms, Dual means double the cover whereas joint doesn’t.
Joint Life Cover - Two people are covered and the life cover is payable on one death within the term of the policy.
Dual Life Cover - This is also taken out by two people. The fundamental difference is that a claim can be paid on both deaths. If one person dies, the policy continues in the name of the survivor.
• Unless you can well afford it – don’t add serious illness cover to your mortgage protection policy. When you are buying a home or apartment, it’s a very expensive business, particularly in Ireland as you have to shell out loads of cash to pay solicitors, estate agents, builders, removal firms etc. Most people have struggled for years to simply raise the required deposit. In short, money is tight and paying the premiums on your simple mortgage protection policy is enough for most people as added benefits like serious illness cover do not come cheap. Our advice is when you can afford it then look at serious illness cover.
Mortgage protection as we can see is a ‘must-have’ policy when you go down the house /apartment buying route. Life insurance on the other hand, whilst being a very important purchase, is also a very discretionary one. It is typically taken out to protect you and your loved ones so that if anything happens to you – there is a lump sum left i.e. the amount of cover you took out, to help them cope with the financial stress of your departure.
Unfortunately, prudence is not a word that comes to mind with most Irish people vis a vis life insurance. It is underwhelming to put it mildly, how low the level of life insurance cover is in Ireland. The stats below were from research undertaken in 2016 so there may have been some small improvement since but we suspect very little..
• 1 in 2 adults aged 26 – 65 have no life insurance.
• Only 1 in 12 parents (8%) have life insurance and death in service benefits. Of the people with death in service almost 1 in 2 don’t know how much cover they have.
- Almost every second parent (45%) with children under 17 have no life insurance. *Source: Irish Life 2016
Here are just some of the costs a typical family faces on a day to day basis so you can imagine the financial carnage if one of the family earners was suddenly taken from this world…
• Mortgage Loan (taking out Mortgage Protection life insurance is mandatory so this should be cleared if there is cover in place)
• Car loans if applicable not to mention house and car insurance.
• Domestic bills such as gas, phone, electricity etc
• Medical bills e.g. all those trips to GP with kids.
• Gym memberships.
• School and ancillary activities (holiday camps, sports clubs etc) fees.
• Educational fees such as school, grinds and university fees
• Private healthcare e.g. VHI, Laya etc.
• Grocery bills (according to the CSO Household Budget Survey – the typical Irish household spends €123 weekly just on food).
• Clothing and footwear.
Having a life insurance policy will ensure there is a lump sum available to help the surviving parent cover all these costs particularly at a time when they are under immense emotional pressure and the last thing they need is financial pressure on top of that. It should be stressed that like that other boring financial topic (pensions) - the earlier you take out the cover the better because it is very cheap when you are young. For example, a 25 year old taking out €500,000 of cover over 40 years i.e. up to age 61 – would only pay €12.06 per month and that price never changes over the term of the policy.
Life Insurance and mortgage protection are the ‘big beasts’ of the protection jungle but there are other types of cover that also warrant close inspection and in an ideal world one would also ‘stock up’ on them too.
Having life cover in place will help your dependents big time if the proverbial bus takes them out but what happens if one doesn’t quite pass through the exit doors into the next world but instead gets a trip to the reception area i.e. becomes seriously ill. A Standalone Serious Illness policy is the ticket you need here as it will provide you with a lump sum payment to help with the financial burden that ensues. Moreover, the odds aren’t great for Irish people escaping serious illness. A recent Lancet Medical Journal study found that Irish men already have the highest body mass index (BMI) – a key measure of being overweight – in Europe, while Irish women rank third. It is therefore not surprising that heart disease is the most common cause of death in Ireland. Approximately 10,000 people die each year from it.
Cancer too is a big issue globally but also sadly very rife in Ireland so Cancer Cover is another policy that suits many as it is not as expensive as serious illness cover because ‘it does exactly what it says on the tin’ and covers only cancer related illness unlike serious illness which covers many more from cardiac arrest to multiple sclerosis. Cancer too has a serious financial impact on individuals and families. The Irish Cancer Society 2019 Report found that the cost of cancer diagnosis typically sees patients suffer a further €756 to €1,000 in additional costs per month.
Finally, there is one life insurance policy that may not only benefit your family but also your mates too and that is Funeral Cover. Its an area none of us want to visit unless we have to but funerals are not cheap. The champions of this type of cover are An Post and their last survey in 2016 showed an average cost for a standard funeral here of €4,062. We Irish are renowned for giving family and friends ‘a good send- off’. Therefore, if you want to make sure you get a decent burial and that your family and friends will be drinking wine and not water at the post funeral reception - having a small funeral cover policy is important.
In conclusion, we will leave it up to the famous UK politician and wartime leader, Winston Churchill, to sum up how important having the right cover is for everyone….
If I had my way, I would write the word “insure” upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever.”