Sole trader - Serious illness and accident cover. Worth it at 58?

D

Dinarius

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I am 58 and a sole trader.

I have had two plans for many years;

One is a serious illness protection plan that pays out a lump sum in the event of certain, specified illnesses. It costs a premium €141 per month. It also has a current investment value of €4052. (This was €5454 in December 2015, €4985 in December 2016 and €4529 in December 2017. How it has lost €1400 in two and a half years, during which time the stock markets have gone in only one direction, is beyond me.)

The second policy, which has no investment value, is for serious accident cover. It costs €64 per month.

So, I'm paying just over €200 per month for both policies.

If I stop now, I take the €4052.

I have no children and a wife who earns far more than I do and is 8 years younger than me.

I'm trying to wind down what I do work-wise to a bare minimum.

I can afford the €200, but should I cut and run and take the €4052?

Thanks.

D.
 
Do you have good health insurance that would cover your medical expenses in the event of a serious illness?

When considering personal insurances, I ask people to look coldly at what their financial circumstances would be in the event that one of the insured events happened. In this instance, I'm assuming that cancer is covered by the serious illness policy. So visualise a situation where you get cancer and are off work for treatment and recovery for years. At your age, perhaps you wouldn't return to work. Would you and your wife survive financially without your income? If you're thinking about cutting down on work and your wife earns more than you, I suspect that you probably would but you know much more about your financial circumstances.

If you believe that you'd survive without your income, then you've established that you don't NEED this cover. As you get older, unfortunately the statistical likelihood that you will actually get one of the covered illnesses grows greater. And of course a big lump sum would be nice to help you to cope with a serious illness. But if you're saying that you don't NEED the cover, then you're into the realm of "do you WANT the cover?" or more pertinently are you prepared to pay the premium to have the additional peace of mind? That's a value judgement and a question that only you can answer.

Dinarius said:
It also has a current investment value of €4052. (This was €5454 in December 2015, €4985 in December 2016 and €4529 in December 2017. How it has lost €1400 in two and a half years, during which time the stock markets have gone in only one direction, is beyond me.)
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This sounds like a reviewable whole-of-life policy, i.e. one that can potentially run forever but it has review clauses that can increase your premium at regular intervals, with the review periods getting more frequent as you get older. I loathe this type of policy with a passion.

Out of the €141 per month you're paying there is an internal split between how much of the €141 is paying for the insurance and how much is going into your investment fund. This internal split changes unbeknown to you as you get older, so more of your €141 is paying for the insurance and less going into your fund. When a tipping point arrives that the cost of the insurance is deemed to be greater than €141 per month, that's when these policies perform their greatest trick - cannibalism. I'd hazard a guess that the cost of your insurance is now more than €141 per month and that units in your fund are being devoured every month to pay the extra. And I'll hazard another guess that this ability was never explained to you when you started the policy or since. I wrote a blog piece on this type of policy some years ago and it's still valid today. http://fergablog.blogspot.com/2011/02/reviewable-me-whole-of-life.html

Regards,

Liam
http://ferga.com
 
Hi Liam,

Many thanks for the great reply.

You are absolutely correct in your guess; the small fund that has been accumulated is indeed now paying to supplement the monthly fund premium. (I've just spoken to the underwriting company.) Hence its loss of 25% of its value since December 2015.

You are also correct about the policy review; if I stick with it, that review happens in February 2020, when I will be 60.

In terms of day-to-day expenses, yes we could easily live on what my wife earns, if I became seriously ill.

So, the only decision is, do I pocket €4k now and stop paying €200 per month, or do I continue paying €200 p/m and have the assurance that, for example, the rest of our mortgage would be more than cleared by the lump sump should I fall ill. To be honest, I haven't a clue!

Finally, if the issue of the premium not covering the policy after a certain time was explained to me when I took it out, I don't recall.

Thanks again.

D.
 
Stock markets may have gone up, but if the funds are in US dollars or sterling, the changes in exchange rates will have eaten most/all of the gains.
 
Personally I'm not a great believer in the idea of having insurances when you don't really need them, financially. Given the reviewable nature of the larger policy, at each review you're going to be asked to increase your premium or reduce your cover. This will keep happening until eventually you give up anyway. If you're in good health now with no medical issues I think I'd be inclined to cancel these policies, take the €4,000 and re-invest the €200 per month. Perhaps into your pension or your wife's if that makes sense from a taxation perspective. Or else just a simple ring-fenced savings plan.
 
LDFerguson said:
Personally I'm not a great believer in the idea of having insurances when you don't really need them, financially. Given the reviewable nature of the larger policy, at each review you're going to be asked to increase your premium or reduce your cover. This will keep happening until eventually you give up anyway. If you're in good health now with no medical issues I think I'd be inclined to cancel these policies, take the €4,000 and re-invest the €200 per month. Perhaps into your pension or your wife's if that makes sense from a taxation perspective. Or else just a simple ring-fenced savings plan.
Click to expand...

Liam,

I'm tempted to take the €4k and walk away.

The policy covered me in the years I needed it most.

Now that I want to wind down and change direction, I might be better off with the money.

Many thanks.

D.
 
One account closed - the one that doesn't pay anything.

Still waiting on them to calculate what's due to me on the second account. When I last checked online, the value of the fund had increased slightly (€50, or so), so the final figure will be interesting.

Before I decided to close, the person I spoke to told me that while the direct debit for the policy was taken at the beginning of the month, the portion of the premium taken from the fund value wasn't taken until the middle of each month. So, she suggested that if I decided to close the policy, I should do so ASAP, which I did - well in advance of "...the middle of the month". So, I wonder if a slice will be deduced for this month. Given that the policy is extant until July 1, I wouldn't be surprised.

D.
 
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