Am I overinsured for life insurance?

A

aristotle

Registered User
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Hi,

Just want to see if anyone has opinions on the following? I think my plan will provide enough life insurance for my family but maybe I am missing something or not?

- currently have death-in-service benefit worth 432k from my employer
- I am not married but am co-habiting and have 2 children aged 3 and 1. We are in our late 30s.
- Partner has no life insurance and is unemployed (stay at home mother)
- Leaving aside the romance of marriage I think we need to get married for inheritance reasons so that my partner receives everything I have tax free in the event something happens to me.
- I currently have no will.

I plan to take out single life insurance for myself only worth 700k for 20 years. I know initially this is too much but I prefer this than paying a indexable premium.

If I live past 20 years then I should have enough saved up anyways from there for my family in the event of me kicking the bucket after that.

I have also accounted for the widows pension so we have peace of mind for the foreseeable future into our pension years.

I suppose income protection might be an idea but then again I work in software\IT so the risk of me not being able to earn an income is low.

Thanks
 
What happens if your Partner dies? What will provide childcare and all the other invaluable services provided?

The term policy is a good idea, I'm just not sure about the sum assured, given the lack of cover for partner.
 
Yes I have been thinking about that. If my partner was to die her house Mortage would be paid off by her mortgage protection policy so that would free up money for childcare. So the family home would be mortgage free.

Plus there would be less costs as well if it was just me.

I can't find the minimum age before the widows pension is payable, is it 66?
 
So in that case I think I should be ok in the event my partner was to die. No Mortage on family home, Widows pension and less costs would more than balance the books and no need for life insurance for my partner.

Strange to be talking about all of the bad scenarios that can happen in life but have to plan for them.
 
Hi Aristotle

Have you taken Inheritance tax into consideration? In the eyes of the law, you and your partner are strangers. Of the death in service and new life cover plan you take out, she is entitled to €15,000 tax free. The rest is liable to tax at 33%. You propose to have total life cover of €1,132,000 of which €368,585 will be paid to the Revenue.

For the new policy, why not have her take it out on your life? She is the owner of the plan, pays for the premium and should you die prematurely, it is paid to her directly as the policy owner. No probate (so it gets paid quicker) and no inheritance tax liability.

You should look at the same on her life. You take out a policy on her life.

Remember, you have 2 young kids and the death of a parent will be very traumatic. You may have to take time off work and maybe bring them away for a while to help them. A bit of "comfort money" may be needed.

You need to get a will sorted too. What happens to the family home should one of you die? Remember, you are strangers in the eyes of the law. There can be big inheritance bills to pay.


Steven
www.bluewaterfp.ie
 
Thanks Steven, yes and it took me a while to realise those problems with not being married. We plan to get married in the next few months. We were very lucky that my partner didn't die last year after complications from birth of our second child.

If we get married then there is no inheritance tax issue and my then wife will receive everything I have?

I have no will. But if we are married and I have no will then I assume the default is that my then wife will receive everything with no tax liabilities?

What happens my pension fund in that case? I have an occupational pension and a PRSA.
 
Hi Aristotle

If you get married, there is no CAT between the passing of assets between spouses. She will not get everything you have though.

If you don't have a will, you get the default State one written under the Succession Act 1965. Under that, your wife will get 2/3 of your assets and your kids will get 1/3 between them.

Your two pensions are treated differently.

The PRSA forms part of your estate.
You are entitled to 4 times salary as a lump sum from your occupational scheme (your death in service is included in this). Anything over this amount is used to purchase an annuity (if you die in your late 30's, she obviously won't get a very good rate, but those are the rules!).

If you are getting a will written, put in enduring power of attorney too. If you lose your mental capacity and can not manage your financial affairs, the person with enduring power of attorney can managed your financial affairs for you. The default is you become a Ward of the Court and an application has to be made to the Wards of Courts office to access your money.

It's all a bit grim but look at the consequences if something did happen!

Steven
www.bluewaterfp.ie
 
Thanks for the info, yeah a bit grim but want to make sure my family will be financially ok if anything were to happen to me.
 
As the bread winner of the family, it is important you do so.

On the life cover side, have you looked at the monthly income at death option? Instead of your partner getting €700,000 in a lump sum (as well as the death in service), which she has to invest and manage, she gets a monthly income from the insurance company. You can decide at outset that she needs €2,500 per month in income and that's what you take out the insurance for.

Steven
www.bluewaterfp.ie
 
I didn't know of that monthly income option but prefer the lump sum approach to it anyways.
Thanks
 
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