Reviewing your financial affairs a vital part of proper planning
A good place to start is with an independent qualified financial advisor.
A full financial review typically involves an examination of a client’s life insurance or life assurance cover, critical illness cover, permanent health insurance, deposit returns, and pension investments.
Some or all of these products may be of interest, or even more importantly for us members of the farming community, may even be a vital part of proper financial planning — for example, to protect your income stream in the event of illness or to provide for a lump sum in the event of an unforeseen death.
It might be worth explaining some of these financial products in plain speak, if you haven’t had direct experience of them.
Life insurance is a policy between an individual and an insurance company, where the company will pay out a set sum to a beneficiary or beneficiaries in the event of a policy holder’s death.
Life insurance differs from life assurance in that life insurance covers an individual for a set period of time, for example until the individual has reached the age of 65.
Life assurance — otherwise known as “whole of life insurance” — is a more expensive type of cover, but in most cases, it will pay out a lump sum on the policy holder’s passing, whenever that may occur.
Where an individual has taken out a mortgage, in many instances the financial institution would insist, at a minimum, that the individual has sufficient life insurance to clear the remaining balance of the mortgage, and that such cover is in place until the mortgage is cleared, this type of life insurance is generally called mortgage protection.
Amongst other factors the premium payable is based on the term or length of the policy, the amount of life cover (that is, the amount which would be paid out in the event of your passing), the age at which you sign up for such a policy, and your medical history and your family’s medical history.
Various add-ons can be strapped on to life insurance cover, such as inflation-proofing, the amount of payout, or providing a pension for a spouse of children.
Critical illness, serious illness cover, and specified illness are all types of cover which usually involve a payout of a lump sum, in the event that an individual subsequently goes on to suffer from one of the conditions covered by the policy.
Again, as part of a financial review, you should ensure the illnesses covered by the policy match your expectations, with some insurers willing to cover a broader spectrum of illness than others.
Permanent health insurance is a different type of product from critical illness cover. It doesn’t normally pay out a lump sum in the event of the policy holder suffering a serious illness. Instead, the permanent health insurance policy will pay out an income stream for as long as the policy holder remains ill.
In some ways, it’s a more valuable cover, in the case of chronic or long-term illness. Standard permanent health insurance policies usually only pay out an income stream for the policy holder after the first 13 weeks of illness, with a cheaper premium cost for policy holders willing to accept a longer deferral period before a pay-out will begin.
A full financial review should also examine the efficiency of your investments, including the return you are obtaining on any savings, as well as the returns on any amounts already invested in your pension savings.
An important part of this pension review is also to examine the amount of fees being charged by the pension provider, which can vary by more than 5%.
Whether you are looking at life insurance, permanent health insurance, or pension investments, tax relief can be available for any of these policies, depending on whether the actual policy provider has obtained Revenue approval for same. Again, this is important, as it can significantly reduce the net cost of benefiting from these financial protections.
When looking for financial advice, it is always a good idea to go to an independent qualified financial advisor, you should always get a full understanding of the financial products you are contributing to, ensuring they meet your expectations.
