First-class medical protection, critical or serious illness cover and life insurance are available at a remarkably low price providing you know how to buy it but you must
- Make sure you are not sold protection you don’t need
- Decide what cover is sensible for you to take out
- Find out who you can trust to advise you
- Make sure you get your cover at the lowest possible price
Woody Allen, the American filmmaker, quipped that his ‘idea of hell is to be stuck in a lift with a life insurance salesman’. Mr Allen is by no means alone in his distrust of both life insurance and the people who sell it. Why should this be? I’m sure it is partly because no one likes to think about anything bad happening to them, and partly because – in order to draw attention to a very real need – life insurance salespeople are forced to bring up uncomfortable subjects with their prospective clients.
However, although it is not something you may rush to tackle, making certain that you have adequate life – and health – insurance will bring you genuine peace of mind.
You know you should…
It isn’t pleasant to dwell on being ill, having an accident or – worst of all – dying. Nevertheless, you owe it to yourself – and those you care for – to spend a little time making sure you are protected should the worst happen. This means being:
• protected by income protection, also called PHI (permanent health insurance) if you are too unwell to earn an income
• protected by private medical insurance if you need medical attention
• protected by life cover if you, or your partner, should die.
There are, of course, plenty of facts and figures available proving just how likely it is for someone of any age to fall ill or die. Sadly, such statistics are borne out by everyone’s personal experience. The truth is we all know of instances where families have had to face poor medical care and/or financial hardship as the result of a tragedy. We all know, too, that spending the small sum required to purchase appropriate cover makes sound sense.
Spend time, not money
The secret is to identify exactly what cover you really need and not to get sold an inappropriate or overpriced policy. It is also important to review your needs on a regular basis. What you require today, and what you’ll require in even two or three years time could alter dramatically.
The best way to start is by considering what risks you face and deciding what action you should take. Here are three questions that everyone should ask themselves, regardless of their age, gender, health or financial circumstances.
Question 1: What would your financial position be if you were unable to work – due to an accident or illness – for more than a short period of time?
Obviously, your employer and the state will both be obliged to help you out. However, if you have a mortgage, other debts and/or a family to support your legal entitlements are unlikely to meet anything like your normal monthly outgoings. If you do have a family then your spouse will have to balance work, caring for you and – possibly – caring for children. Is this feasible or – more to the point – desirable? How long will your savings last you under these circumstances? Do you have other assets you could sell?
Unless you have substantial savings and/or low outgoings then income protection cover and/or critical/serious illness insurance could both make sound sense.
Question 2: Do you have anyone dependent on you for either financial support or care? Are you dependent on someone else financially? Do you have children – or other family members – who would have to be cared for if you were to die?
If you are single and don’t have any dependents then the reason to take out life insurance is in order to settle any debts and/or leave a bequest. If, on the other hand, there is someone depending on you – either for money or for care – then life cover has to be a priority.
If you are supporting anyone (or if your financial contribution is necessary to the running of your household) then you need to take out cover so that you don’t leave those you love facing a financial crisis.
If you are caring for anyone – children, perhaps, or an ageing relative – then you should take out cover so that there is plenty of money for someone else to take over this role.
Question 3: Does it matter to you how quickly you receive non-urgent medical treatment? If you need medical care would you rather choose who looks after you, where you are treated and in what circumstances? How important is a private room in hospital to you?
We are fortunate enough to enjoy free basic health care in Ireland. However, if you are self-employed or if you have responsibilities which mean that it is important for you to be able to choose the time and place of any medical treatment, then you should consider private medical insurance.
Income protection cover
If you are of working age then the chances of you being off work for a prolonged period of time due to illness or an accident are substantially greater than the chances of you dying.
It is for this reason that income protection cover is so valuable. As its name suggests, it is designed to replace your income if a disability or serious illness prevents you from working. If you are in a company pension scheme – or if you have arranged your own pension – you should check to see what cover you have already since it is sometimes included.
Incidentally, most policies only pay out after the policyholder has been off work for a minimum of 13 weeks unless hospitalised. Also, if you want to reduce the cost you can opt for a policy that doesn’t pay out until you have been off work for 26 weeks. Most important of all, it is the ONLY form of insurance outside of non-assignable life cover within a pension plan that attracts tax relief at your marginal rate on premiums paid.
Critical or serious illness insurance
Horrible as it is to think about, imagine being diagnosed with a serious illness. I am talking about something like cancer, heart disease or multiple sclerosis. Naturally, under the circumstances, you might need special care and/or want to make life changes. This is where critical or serious illness insurance comes in. Providing you survive for two weeks after your diagnosis you will receive a lump sum of tax-free money to spend however you wish. Clearly, such a sum would allow you to pay off your debts, seek specialist treatment or in some other way ensure that you didn’t have any financial problems.
It is important to remember that this cover provides you with a lump sum – not an income.
There are several different types of life cover -but they are all designed to do one thing. For a relatively low monthly payment they provide a lump sum if the person insured dies. The lump sum is tax free and may go into the insured’s estate or may be directly payable to a nominated person (such as his or her spouse).
In the case of more expensive life cover the policy can have a cash-in value after a period of time has elapsed. The cost of life cover will be determined by your age, gender, and lifestyle. If you are a non-smoker and don’t drink heavily you will save quite a bit of money. There are two basic types of life cover :
As its name implies, term insurance is available for a pre-agreed period of time – usually a minimum of ten years. It is mandatory when you take out most interest-only home loans.
It is particularly useful for people with a temporary need. For instance, if you have young children you and your spouse might take out a 20-year plan giving you protection until your family have grown up and left home. By the same token, you might take out a policy that would pay off the exact amount of your mortgage.
Term insurance is the least expensive form of life cover and you can opt for:
Level term. The amount of cover remains the same (level) for the agreed period. For instance, you might take out € 50,000 of cover for ten years. The cost will remain fixed for the same period, too.
Decreasing term. The amount of cover drops (decreases) every year. For instance, you might take out € 50,000 of cover that drops to € 48,000 in the second year, € 45,000 in the third year and so forth. Such policies are almost always taken out in conjunction with mortgages in order to pay off the outstanding debt should the insured die. Note this sort of cover can’t be extended or increased in value once you have taken it out.
Convertible term. Although the cover is for a set period of time, a convertible policy will allow you to extend your insurance for a further period regardless of your health. This is a very useful feature because it means that if you suffer some health problem you won’t be denied life cover because of it. In fact, if you extend the policy, the insurance company will charge you the same premium as if you were perfectly healthy. Convertible term cover is normally not much more expensive than level term cover and – therefore – is usually the better option.
Whole of life assurance
There are two benefits to taking out a whole of life assurance plan. Firstly, providing you carry on making your monthly payments the plan is guaranteed to pay out. In other words, you are covered for the whole of your life. Secondly, there can be an investment element to the cover. So if you decide to cancel the plan you’ll receive back a lump sum.
There are various features you can opt for with whole of life cover. You can vary the balance between actual life cover and the investment element, for instance. Also you can decide to end the cover at a particular point – when you retire, for instance. Some whole of life policies are designed to meet inheritance tax liabilities.
Whole of life cover, as you can imagine, is more expensive than term cover.
Private medical insurance
This type of insurance is designed to meet some or all of your medical bills if you opt to go for private treatment.
Only four companies provide this cover in Ireland. VHI (Voluntary Health Insurance) AVIVA, GloHealth ( now both fully owned by Irish Life) and LAYA Healthcare. Between them they offer a wide range of plans with an array of options, conditions and limits.
Discounts can be available if you join through a ‘group’ – your employer, for instance, or a credit union.
Always look for professional, independent advice – better in your pocket !