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.

Get Your Affairs in Order

The title of this blog piece has nothing to do with Tiger Woods, Wayne Rooney or any of their ilk. I came across this checklist on Chartered Accountant Tommy McGibney's excellent tax blog.

Like most good ideas, it's a simple one. While most of you have already made a Will (haven't you?), this is a simple checklist detailing where various important documents, bank accounts, life assurance policies are held and who the relevant contacts are.

I'd strongly urge everyone to take an hour or two to complete this, make a few copies and let a few trusted people know where your checklist is kept. In the event of your death, it could make matters so much easier for those you leave behind.

MBNA - the good, the bad and the...

I have an MBNA crdit card and I (nearly) always pay it off each month in full to avoid paying interest. In general I find that MBNA offer very good customer service, but woe betide anyone who falls the slightest bit behind in their repayments.

The Good. Option to manage your account entirely online eliminating paper with robust security. Option to notify MBNA when you're going abroad as they can and do contact you if an unusual transaction (e.g. one from a foreign country) appears on your statement.

The Bad. For no other reason than human error, I forgot to pay MBNA by the due date one month. This would be the first time I had been late with a payment in literally years of having the card. I received a phone call from a machine asking me to commit to a payment, which I did. The same (very irritating) machine rang me at least four subsequent times even though I had already made the payment and gone through the long process of "Press 1 for this, Press 2 for that" several times.

If you're unfortunate that you end up in arrears with an MBNA credit card, it can turn positively ugly.

Verdict? A fine service as long as you make sure to pay on time every time.

Deposit Guarantee Scheme extended

The Department of Finance has announced that the Credit Institutions (Eligible Liabilities Guarantee) Scheme (the ‘ELG Scheme’) has been extended from its original end date of 29th September 2010 to 31st December 2010.

It's important to note that there are two deposit guarantee schemes in operation - the Deposit Guarantee Scheme, which covers all deposits up to €100,000 and does not have an end date and this ELG scheme which covers deposits in excess of €100,000 and has been extended to 31/12/2010.

It's also important to make sure you know if your own bank is part of either or both schemes. Not all banks operating in Ireland are part of both schemes and some are part of neither, as they participate in their own country's deposit guarantee scheme.

See the Department's press release here.

Feel free to talk to us about your deposits and their security. We are authorised to arrange deposit accounts and have attractive rates for demand, notice and fixed rate accounts for individuals, corporate customers, charities and pension funds.

Mortgage lending in Ireland has fallen off a cliff

This is a guest post written by Simon Moynihan, Communications Director at www.bonkers.ie

"A bank is a place that will lend you money if you can prove that you don't need it."

Bob Hope could have written that line about lending in Ireland today. With high deposit rates, it’s a great time for savers, but borrowing has become more and more difficult each year since the bust. Customers have known for some time that the game has changed, but many banks still insist that they are open for business and approving large numbers of home loans every day.

A few weeks ago the Irish Banking Federation and PWC gave us numbers that tell a very different story. In their latest quarterly report on the Irish mortgage industry, they showed that mortgage lending is still very much on the slide. In the first quarter of this year, there was less money approved and funded for mortgages than at any other time since the beginning of 2005 (which is as far back as the IBF/PWC numbers go).

In fact, total residential mortgage lending in Ireland was just €1.22bln in the first quarter of this year. That’s a drop of 39% on the same quarter last year, and a drop of 85% on the first quarter of 2006. By anyone’s measure, mortgage lending has fallen off a cliff.

What’s really telling is that only 6,954 mortgages were actually funded in the first quarter of 2010; that’s just 77 per day.

Of the small number of people actually getting loans, most of them fall into Bob Hope’s category of people that don’t need the money. 61% of those who walked out of the bank with a cheque were topping-up, re-mortgaging or moving. Basically people that already had homes – and obviously enough equity to prove that they were worthy of the loans.

Although 35% of those loans were given to first time buyers, it was the lowest number of first time buyers given mortgages since the (IBF/PWC) records began, but still… good to know that there’s some hope for people trying to get their first home.

So what’s going on? Why, when there’s (supposedly) good value in the property market and the banks have been re-capitalised by the taxpayer, are we seeing the lowest number of home loans funded in over six years?

Well, the banks know that lending money for depreciating assets is bad business so they are requiring deposits of at least 8% and as much as 20% from first time buyers. Even in a collapsing property market these are very high ratios, and eliminates a heck of a lot of potential borrowers, most notably first-timers of whom just 29 a day are getting the money they need to get into their fist homes. Then there’s the new and rigorous vetting criteria that potential borrowers have to stand up to including financial inspections, job security checks, proof of savings habits, credit checks and so on.

Next, there’s the arrears issue. Thousands and thousands of Irish households are simply unable to make payments on their existing loans. The Financial Regulator announced a couple of weeks ago that more than 32,000 residential mortgage holders are over three months in arrears and of that number, 22,000 are more than six months behind. That’s a frightening figure because it accounts for more than 1 in every 25 mortgages held in Ireland. It is so much of a concern that Matthew Elderfield, the new head of the Financial Regulator reckoned that mortgage arrears may be “the biggest legacy issue” of the bust.

The arrears story got strong coverage in the press, as it should have. Then Charlie Weston of the Independent did some digging and in a captivating article published on June 2nd he pointed out that that figure for mortgages in trouble is in all likelihood much higher… here’s why:

• There’s another 15,500 householders getting mortgage support from the state.
• Thousands more have had the mortgages re-structured to interest only or the terms have been lengthened to reduce the payments.
• Householders who have lost their jobs are working through their savings to meet their payments.
• More cash-strapped householders have negotiated payments that are a fraction of their standard mortgage payments.

These loans are obviously in trouble but they are not included in the official arrears figures compiled by the Financial Regulator because they are still considered to be performing. When Charlie Weston was researching his article he spoke to Aoife Walsh, a representative of the housing charity Respond, and she reckoned that 70,000 householders could be in, or in danger of default. That’s more like 9% of all residential mortgages in the state, or 1 in every 11.

Next, there’s the government-authorized delay on legal repossessions for all lenders regulated by the Financial Regulator – better known as the Moratorium. Introduced back in 2009, a bank could not begin proceedings to repossess a home unless there was at least six months worth of arrears. This was good news for struggling homeowners of whom we now know there are many, but certainly a time-bomb waiting to go off.

Then in February 2010, Brian Lenihan announced that the Moratorium had been extended to 12 months. It looks like the potential shock of 22,000 repossessions kicking off was just too much for an ailing government to stomach. But doesn’t this reprieve have to come to an end sometime? Or, if the numbers in arrears keep escalating, should we expect to see Moratorium extended again next February?

Throwing even more fuel on the fire, the Irish Times reported that banks like Anglo Irish have begun selling off mothballed apartment schemes at knockdown prices. The first of the schemes to be sold off are in decent locations and serviced by decent amenities, so they should sell – but most likely to investors rather than the first time buyers who could really use them.

Sadly, it’s unlikely that first time buyers would get approval to buy these apartments; after all it’s the banks themselves that are now flogging them off. In addition, selling entire apartment schemes at hugely discounted prices will affect sale prices elsewhere, further depressing the market and making it harder to borrow to buy homes!

So how much have things really changed? Well, in the last quarter of 2005, just as the Irish property market began to boil, Irish banks gave out 8 times as many mortgages to 8 times as many people as they did in the first quarter of this year. Back then, 55,618 residential mortgages were funded in Ireland, which is 605 per day. Their total value was a staggering €10.34 billion. You guessed it – that’s more than 8 times as much money as Irish borrowers received in 2010.

It’s difficult to know when this will turn around, but the signs say no time soon. There’s simply too much pressure on the banks and very little incentive to for them to lend despite catchy claims and ad campaigns. Although we’ll never know the exact circumstances of the 77 people per day that are actually getting mortgages, one could make an informed guess they are seriously financially stable and as Bob Hope says, are able to prove they don’t really need the money.

Guide to Dealing with Mortgage Repayment Difficulties

The Irish Bankers' Federation have published a guide containing some basic advice on what to do and what not to do if you experience difficulty meeting your mortgage repayments.

It can be downloaded from their website here.

There may possibly be comments about the irony of the IBF publishing such a guide when it could be argued that practices of some of their members may have contributed to some people's current difficulties, but we are where we are. It's a useful guide nonetheless.