Life Help in deciding what life cover products to choose

My background - married with infant son. Early 30's. I am the sole earner. I earn a good salary. Home owner. We are all in good health. My wife has no plans to enter the workforce anytime soon and we may plan to increase our family in the next few years.

My current level of protection is:
1) Basic mortgage protection cover for both me and my wife - to pay off the mortgage in the event of either one of our deaths
2) My DC pension provides a payout (in the event of ONLY my death) of 8 times my basic salary plus my pension contributions. Due to Revenue limits - 4 times basic salary plus pension contribution can be taken as a lump sum - the remainder can be used to buy an annuity and provide a salary for my wife & son.

I am looking at the following areas (and if there are areas I have omitted please let me know):

1) Serious illness cover - to provide a lump sum if either my wife or I contracted a serious illness
2) Income protection - to provide a salary if I was unable to work - my company only pays 10 weeks of sick leave.
3) Improvement of death pay out cover - supplement the lump sum pay out for my death and include my wife, so that I would receive a lump sum in the event of her death. -
I mentioned a Revenue limit above - my pension company informed me this - is there a limit to what death lump sum payout a person can receive? Or is the information that my pension company gave me just in relation to pension lump sum payouts due to the tax free nature of them?

Now I am aware that all of this can be quite expensive and in addition I may not need all elements.

I have reviewed a website http://low.ie/ (no affiliation with the website) and I've gotten different quotes based on putting differing lump sum amounts.

I guess I don't know how much of a lump sum I should go for? 100k, 200k, 500k?
Is there a way of estimating / a formula based on your salary perhaps?

In terms of life assurance companies - are there ones with better reputations that won't nit pick every detail and try to find loop holes to prevent paying out?

So if anyone is in a similar situation like me, I would appreciate sharing with me what options you chose or if anyone has any opinions that are welcome.

A work colleague mentioned to me that there is a tax deductible element to this? Is this for just income protection or does apply to all life assurance products?

Thank you for taking the time to read.

JR

What amount of income needs to be replaced if you are no longer around bring in an income? Take into consideration that the mortgage will be paid off and a Widow's pension will be paid. Also take into consideration the cost of care if you have to work if your wife isn't around and the time off you will need to take if she died.

You will also need a lump sum for funeral costs and some comfort money too (you may want to bring your son to Disneyland?).

New Ireland have a plan that pays out life cover as a monthly income instead of lump sum plus a small lump sum for funeral etc.

Otherwise, to take a simple approach, multiply the monthly requirement by the amount of months to age 65 to get a lump sum amount. If you want index linked cover, don't necessarily go with the cheapest initial premium as they tend to increase the premium by higher amounts than those who have a higher initial cost.

Regarding death in service, remember if you leave that job, the benefit ends, so don't be 100% reliant on it.

Serious illness is good to pay off debt. It can be expensive, so even if you have cover for 4/5 years mortgage, that should be enough.

Income protection is essential. Your wife doesn't work and there's no plans for her to work. If you can't work, you will get €9,774 from the State. Is that enough to cover the bills? Even if you are as fit as a fiddle, who's to say someone else won't crash into you and you need full time care?

You get tax relief on income protection premiums but the payment is taxed under PAYE.

There is a form of life cover that attracts tax relief but you are in pensionable employment so are not eligible to claim tax relief on the premiums.


Steven
www.bluewaterfp.ie

Serious illness cover is pricey and my concern would be being sick enough to be unable to work yet not be eligible for a serious illness payout. I'd view income protection a better prospect but perhaps again pricey. Whatever you decide on those you should get a term life policy covering both of you until such time as children are grown up . . something like a 25 year convertible dual life term policy would do the trick (I have something similar, not index linked).

Thanks for the replies folks.
Some good information there to think about.

Yes I agree with the income protection and it is something that I would want in place, due to me being the sole earner in the family.

I was dismissing serious illness due to it being expensive however your recommendation of 4/5 years seems like a good idea and makes it more affordable.

I am a member of a credit union that pays ~3k death benefit insurance - which they suggest can be put towards funeral expenses - my family can also join and my understanding is that in the event of any of our deaths, that this small amount of money is paid out.
Still I understand what you are saying and I would like a term life policy like michaelm has mentioned.

In relation to the life policy - I know it can pay out in the event of one of our deaths but I've heard about policies that you can cash in at the of the term?
Any information or opinion on those?

As it looks like there are 3 areas here - I was wondering is it possible to group them together? Would there be a saving to be made if I were to do this?
Or should I deal with each area separately?

At this stage I feel I should speak to a broker - any recommendations would be appreciated.

Cheers,
JR

Jiblet-run said:

I know it can pay out in the event of one of our deaths but I've heard about policies that you can cash in at the of the term?
Any information or opinion on those?

Click to expand...

They are unit linked policies and they tend to be open ended contracts. They start cheap but usually get extremely expensive. You get letters from the insurer saying you have to double or treble the premium to maintain the same cover. I would avoid.

You can group specified illness with life cover, which is what I always recommend. If you get a specified illness, you have to survive it for 14 days for it to pay out. So, if you get a heart attack and you drop dead, even though you got the specified illness, there is no pay out. Then, if you get knocked down by a bus, no pay out. For a marginal extra cost, you can add life cover to the plan. If you get the specified illness, that cover pays out and the amount paid out is deducted from the life cover. If you get just die prematurely, the life cover element pays out. E.g. €50,000 specified illness and €200,000 life cover. If the specified illness pays out, there is €150,000 life cover left.

I'm an independent financial advisor, you can give me a call on 086 020 6087 or email me at [email protected] if you want.

Steven
www.bluewaterfp.ie

Hi - I am not sure if I am posting this in the right place (first time poster!).

We are in the process of getting cover for €400K for 24 years - we have decided to go with the dual/convertible/index linked product. (we are both 40 non smokers!)

Both the dual & convertible options only cost a few euro extra a month so they seem worth it. Reality is 24 years is a while away so would like to have the value index linked.

Once we have decided on the product is it as simple as just going with the cheapest cost? New Ireland indexing is 3/3 so thinking of going with these?

Final Question - do we have to use a broker or can we go direct? Any advise who to go with or how to progress this?

Hi

When arriving at the level of cover you need, you need to calculate how much income needs to be replaced if one of you dies. Will €400,000 do that or even will it be too much?

On indexation, New Ireland are usually have a higher initial premium but their indexation is only 3%, the lowest in the market. This can save you thousands over the term of the policy. On indexation, will you need cover of €813,000 when you are 65...when you should have lower outgoings and have a pension pot as well.

Going with the monthly payment option (they pay you a monthly amount instead of a big lump sum), is an easier way of assessing how much cover you need.

You can use a broker or go direct, the cost is the exact same. If you go direct, you get a direct sales rep from the life company you talk to. If you use a broker, you get a view of the whole market.

Steven
www.bluewaterfp.ie