MAKING CENTS: Having the right cover for life and in case of death

A RECENT survey of Irish consumers found that almost two thirds of respondents regularly think about the future financial situation of their loved ones if they were to die, but many also said they don’t know what income their family would live off if the worst happened.

For many people the complexity and variety of the products on offer is half the problem — it’s hard to know where to start and what products are needed for the different stages of life. The first encounter with life insurance for many is when they take out their first mortgage. I asked Nick McGowan, an independent life insurance broker with LION.ie, what is the best advice for first-time buyers.

“When you’re taking out a mortgage you’ll want to keep costs to a minimum,” he said. “All you need to satisfy your bank is a mortgage protection policy, don’t be fooled into buying a more expensive life insurance policy.

“Don’t add serious illness cover to your policy because in the event of a claim, the bank will get the payout even if you need it for life saving surgery. If you’re interested in serious illness cover, buy it on a separate policy that the bank has no claim over.”

An additional product worth considering if you don’t have long-term sick pay through work is mortgage income protection. These policies will pay your mortgage should you be unable to work long-term due to any illness.

“We all know how aggressive the banks have become in regards to repossession, mortgage income protection could save your home.”

The insurance industry says life cover is particularly crucial while children are young; 13% of people in survey revealed that if they were to pass away their family would either live off state help, or rely on support from family and friends

“The reality is that family finances and the household bills will still need to be looked after even if the main breadwinner passes away,” Joe said.

It is important not just to have cover, but have enough of it.

“I worry when somebody asks me to quote for €100,000 cover and tell me they earn €50,000,” McGowan said. “They are covering two years income, how long do they expect to be dead for?”

He suggests that as a rule of thumb you should hold 10-15 times your annual income in life insurance and also recommends fixing the price of this cover until your youngest is 25.

“So let’s say you’re 35, earn €40,000 and your youngest child is three. Cover for €600,000 over 22 years costs just €37.58 per month. That’s peanuts when you think of what would happen your loved ones without life insurance.”

When families are no longer financially dependent, life insurance is no longer as important and it may make more sense to downgrade cover and use the funds to cover other risks.

“As you get older, you’re more at risk of a critical illness so it could be time to consider serious illness cover,” McGowan suggested.

When shopping for a policy McGowan doesn’t recommend buying from a bank or going direct to the insurer as they can only sell you a policy from one insurer. Instead, use an independent broker who deals with all six providers.

“You’ll get independent advice and a better quote.”

I asked what were the most common mistakes people made when buying life cover. “Not adding a conversion option. Always, always, always add a continue cover option to your policy,” McGowan said. “It guarantees you cover in the future even if your health suffers.”

Don’t presume that all insurers and life insurance products are the same. “Weight, raised cholesterol, high blood pressure, mental health and other pre-existing conditions are treated differently by the insurers. Depending which insurer to apply to, they may or may not cause an increase in your premium. Get an indicative quote taking your health into account before you apply. Apply to the insurer that is most sympathetic to your condition, don’t just go for the cheapest initial quote.”

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