Two Months' Cash Back on Life Insurance & Income Protection

If Life Insurance or Income Protection has been something you've been planning to get around to for a while, here's an offer that might motivate you to get it sorted once and for all.

Anyone who applies for a new life insurance policy (including Mortgage Protection life insurance) or an Income Protection policy before the end of February 2012 will receive a refund of their first two months' premiums. The policy must be issued before 27th April 2012, all premiums must be paid on time and the refund will be paid within 60 working days of paying the second month's premium. Maximum cash-back is €1,000.00.

As always, part of our Protection service includes a comprehensive Needs Analysis. We don't recommend that you take out a protection policy with a randomly-selected level of cover. Instead we calculate and show you the correct amount of cover for your needs.

For a no-obligation free quote, just contact us at info@ferga.com

Free €10,000 life cover offer

A recent survey by Irish Life discovered that 2 out of 3 people who have life cover only have enough to protect their mortgage and have none to protect their children or dependants in the event of their death.

As a way of raising awareness, Irish Life are giving away €10,000 of free life cover for year to the first 20,000 people who sign up. There's no catch - the cover is free and anyone can apply provided that they're under 55 and have at least one child aged 13 and under.

Click here to get more information or apply. Or if you know people who might be interested, send them this link.

If you have any queries just drop me an e-mail to liam@ferga.com

The world will end when men & women pay the same for insurance

I wrote recently about how insurance premiums of all sorts will have to be harmonised for gender from 21st December 2012 following a European Court of Justice ruling. So from then on it will be illegal to charge different premiums for men and women for insurance.

But it will never happen!

As it turns out, 21st December 2012 is the day that the world ends. This is the day that the Mayan calendar ends and according to many highly respected sources, it will be the date that the world will come to an end. Google "End of World 2012" if you don't believe me. The internet never lies.

Oh those cunning Europeans.

Unisex premiums for insurance deferred

I blogged last week about today's European Court of Justice hearing in relation to whether or not men and women could be charged different premiums for various types of insurance. This includes life assurance, income protection cover, car insurance - any type of insurance where gender is a factor in the price.

Well the Court today decided that gender-based pricing is not in keeping with EU law. BUT they have permitted an extension such that the current pricing methods can continue to apply until 21st December 2012.

No doubt our insurance companies will be poring over the full text of the judgement in the coming days to see what needs to be done. But it's business as usual for now...

You can read the press release here.

Men and Women are different, you know

Insurance pricing relies heavily on statistics. Men pay more for life insurance than women because the statistics show women tend to live longer. Women pay more for Income Protection because the statistics show that women tend to suffer more medium and long-term illnesses than men.

However, last year the Advocate General of the European Court of Justice claimed that it is legally inappropriate to price insurance products according to a person's gender. Next Tuesday, 1st March 2011 the Court is due to rule on this issue.

Depending on the ruling, this could mean that males and females get charged the same for insurance and assurance products going forward. It could even mean that existing policies need to be re-priced to harmonise for gender, although that would be a massive and costly undertaking, with potential challenges from people who have fixed cost contracts.

My guess would be that in the short term, insurance companies are unlikely to bring prices down. What are the bets we see costs of life insurance going up for women and costs of Income Protection going up for men, if rates need to be harmonised for gender?

Reviewable (me) Whole of Life

There's a particular type of life assurance product that has been on the market since the 1980s known variously as Reviewable Whole of Life Assurance, Unit-Linked Whole of Life Assurance and Make Extra Commission for the Salesman Assurance. Most life assurance companies have sold this type of policy at one time or another; some still do.

The basic idea of this type of policy is usually that you pay a premium, often monthly, and your premium pays for life assurance cover - a lump sum in the event of your death - and also buys units in a fund, providing you with a lump sum that you can cash in after some years. So far so good. The sales pitch usually focuses on the fact that it's whole of life, (meaning that the policy doesn't expire at any fixed date and you can therefore choose to keep your life assurance cover for as long as you need it) and that unlike other types of life insurace policies it acquires a cash value, so you can decide to stop the policy if you do decide you don't need the cover any more and can cash it in. The inference is generally that this is better than paying into a policy that only pays out on death and will expire at the end of the term if you're still alive - "dead money".

Here's a list of reasons why I don't like this type of policy and wouldn't sell one to an enemy, never mind a client.

(1) Review clauses. While the policies can theoretically continue for the rest of your life, there are always premium review clauses - often after 10 years, each subsequent 5 years and when you reach age 70, annually. At these reviews, the life assurance company can put up your premium to maintain the same level of cover or can ask you to reduce your cover if you want to continue paying the same premium. The older you get, the more frequent the reviews become so that eventually you'll be asked to pay so much to maintain your life cover that it just won't make any financial sense. That's not true "whole of life" cover.

(2) Variable cost of life cover. Aside from the periodic reviews, the cost of the life cover is not fixed. Let's say you start a policy paying €100 per month and at the outset €50 of this is paying for your life cover and €50 is buying units in the fund. This 50/50 split is not fixed and as you get older, the split internally will change without you being notified, so that it could be 60 life assurance/40 fund, 70/30 and so on, while you still pay the same €100 per month.

(3) The policy can eat itself. If the internal split between the cost of life cover and the amount diverted into your "savings" fund swings so far in the direction of the life cover that the life cover cost actually exceeds the monthly premium you're paying, the policy can perform a feat that even Hannibal Lecter would have baulked at - it can start eating itself. So going back to the example above, if you're paying a premium of €100 per month and the internal cost of life cover eventually exceeds €100 per month, the policy can start eating into the fund you have accumulated to subsidise the cost of life cover. Over time, the cash value of the policy gets eaten away and can eventually dwindle to nothing.

So my advice is to avoid these reviewable whole of life policies like the plague. There are alternatives. Several companies offer Guaranteed Whole of Life cover - life cover at a guaranteed, fixed cost for the rest of your life. It's expensive, but remember that at some point the policy WILL pay out the life cover and you have complete transparency and certainty around what you're paying, now and into the future, and what you'll eventually get.

Anyway, most of us don't need Whole of Life cover. For many people, the need for life cover diminishes over time - the mortgage and loans get paid off, the dependent children leave the nest and become financially independent, we build up pension funds, savings and investments so that our death is no longer a financial burden on anyone. For anyone in that position, it's far more cost-effective to take out life insurance cover to fulfil a need for a fixed period of time - Term Life Insurance is invariably cheaper than Whole of Life.

If you still can't get past the "dead money" idea - that premiums paid into Term Life Insurance are dead money if you survive to the end of the term, consider two things: - (a) you'd pay extra for a horrible reviewable Whole of Life policy. Do a cheaper Term Life Insurance policy and put the difference into a savings account every month. You'll know exactly what you're paying for life cover and what you're saving and you'll still have a lump sum to draw on when you want. (b) You pay for insurance on your home and car and don't expect to get a return from either if you don't claim. Life insurance is no different.

Yes, policies do pay out.

I sometimes hear criticism levelled at the insurance industry in general that insurance companies will do their level best to wriggle out of paying claims. In my experience, a reputable insurance company won't attempt to wriggle out of a genuine claim, where the client has kept fully and honestltly to their side of the contract.

So I watch the actual claims statistics published by the various insurance companies with interest - not a ghoulish interest but rather as a reminder of what insurance is really all about.

In 2009 Irish Life paid out a quarter of a billion euro in death, specified illness and income protection claims to five thousand Irish Families. That's just one company, albeit a BIG one in terms of market share. But there's nearly a hundred families a week that were undoubtedly glad that they didn't reject the idea of insurance as a waste of money.

Claims - It could be you

For a bit of light reading, I was just reading over Irish Life's claims statistics for 2008. An insurance company's claim-paying record is hugely important.

In 2008 Irish Life paid out over €220 million in claims, broken down roughly as follows: -

• More than €134 million in life cover claims to over 2000 families
• More than €34 million in Specified Illness claims; and
• More than €52 million to over 3,000 Income Protection claimants

Considering that this is one company, albeit the largest in the country, these are sobering statistics. No doubt each claimant thought they would never need the cover when they took it out.

Tax Relief on Life Assurance

I'm surprised that life assurance companies don't spend more money advertising this, but if you want something done, you might as well do it yourself! There is a form of life assurance policy that can qualify in full for tax relief at your highest rate, which can therefore knock up to 41% off the cost. In some instances you can also claim back Employee PRSI relief on the premium.

Such policies are available to the self-employed and those in non-pensionable employment (i.e. in employment but not in an Occupational Pension Scheme.) One fact that is not widely known is that if you contribute to a PRSA, you are deemed by Revenue to be in non-pensionable employment, even if your employer contributes to your PRSA. So you would still be eligible to hold a tax-efficient life assurance policy.

Some points to note about life assurance policies on which you can claim tax relief: -

(1) They only provide cover on death and have no value except on death.

(2) They cannot be assigned so you can't use them as security for a mortgage or other loan.

(3) You cannot have a joint policy, although if you and your partner are both self-employed or in non-pensionable employment you can each have such a policy.

If you're eligible and are seeking to protect your dependents at a reasonable cost, this is definitely worth enquiring about.

Be careful with annual house insurance increases

Your home insurance may well include a clause that increases your level of cover by a fixed amount, or perhaps by the Consumer Price Index (CPI) each year. This was appropriate when the cost of building was rising steadily. However, a recent review by the Society of Chartered Surveyors suggests that the cost of rebuilding a home has actually dropped by up to 5% recently.

So when your house insurance is up for its next renewal, check that the rebuilding cost is still a reasonable estimate of how much it would take to rebuild your home.

Two points of caution, though - (1) many people under-insure their homes, grossly underestimating the rebuilding cost of the property. Manke sure you're not one of them. (2) Many policies link the value of the contents to the rebuilding cost, e.g. contents insured for 20% of rebuilding cost. If you choose to amend the rebuilding cost on your house insurance, make sure the contents cover is still appropriate.

Bank of Ireland are reviewing their policy of automatic annual increases. See here.