Mortgage Protection
When you enter a borrowing arrangment (usually
mortgage) with a lending institution you may be required to obtain Mortgage
Protection. Even when you are not obligated to obtain cover you do need to
consider the financial consequences, on your dependants, in the event of your
untimely death, prior to conclusion of the loan.
The mortgage protection policy has been designed
to cater for that specific event. The insurance cover provided is calculated
so that it roughly equates to the outstanding loan account in each year, and
amounts to nil at the projected conclusion of the loan.
The policy only provides the protection for
the loan/mortgage. There is no investment element and no residual balance
at the end of the term.
N.B. Cover is relatively cheap,
depending on age, etc.. Lending institutions may offer you a policy, but you
are not obliged to accept the lender's policy. You are free to, and should,
obtain alternative quotations.
- Purpose:
In the event of death, repay outstanding loan
- Protection:
Usually limited to amount of outstanding loan
- Savings:
No savings or investment element
- Benefit:
Only in event of death during term of loan/policy.
Term Life Assurance
A Term Life Assurance policy provides a defined
benefit amount payable in the event of death within the defined term of the
policy. It is designed as a protection policy only and no benefits accrue
or are payable in the event that the insured survives the term of the policy.
The benefits and the amount that you pay under a Term Life Assurance policy
are guaranteed and do not depend on investment performance.
Term Life Assurance can be provided on a number
of basis:
- Single Life – Covers
one person only.
- Joint Life – Covers two people with
the benefit being paid on the first to die only.
- Dual Life – Covers two persons independently.
A claim will not affect cover on the other person, and you can cover each
person for different amounts.
Other options can be added to the basic policy
to provide:
(a) Indexation:
The amount covered can be increased annually to cover the estimated cost of
inflation. There will be a proportionate increase in the premium cost for
this option.
(b) Conversion: Provides
the option to continue or convert the existing policy, without additional
medical evidence. Premium cost will be dependant on age at date of conversion
and extended period of cover.
Features:
-
Purpose:
Protect dependants in the event of death
-
Protection:
Amount specified in policy
-
Savings:
No savings aspect
-
Benefit:
Only benefit arising on death, within term of policy.
Whole Life Cover
A Whole Life Assurance policy pays out a fixed
amount of Life Cover as a tax-free lump sum on death. The amount payable on
death is fixed at the outset and stays the same throughout the duration of
the policy, there is no fixed term with this plan, cover continues throughout
life. You simply choose the amount of cover you need and one of the following
options, whichever suits your needs best:
1. Unit Linked: This option
means that premiums are invested in a unit linked fund. The cost of cover
is reviewed every 10 years, at which stage it may be necessary to increase
premiums, depending on the value of the units in the life fund. Cover generally
becomes more expensive with age and may require increases in the premium
payable to maintain cover.
2. Guaranteed: This whole of life contract guarantees a
set level of cover whilst the premiums are guaranteed to remain the same
for life. As a result the cost of this cover reflects the fact that premiums
are guaranteed for life.
Features:
-
Purpose:
Protect dependants in the event of death
-
Protection:
Amount specified in policy
-
Savings:
No savings aspect
-
Benefit:
Only benefit arising on death.
Serious Illness Cover
In the event of an individual sustaining serious illness during the course
of their lifetime, it is likely to have substantial medical as well as financial
consequences. Serious Illness cover provides a lump sum in the event that
the insured is diagnosed as suffering from one of a number of specified serious
illnesses or needs to undergo a specific surgery. A Serious Illness payment
will only be made once. Further benefits are not made on any subsequent events
and no further premiums are payable. The cost of Serious Illness cover is
higher than the cost of Life cover.
You can effect a Serious Illness plan independent of any Life Cover, or your
can combine this cover with your Mortgage Protection or Term Life Cover. Where
cover is combined it can be completed on the basis of a “Stand Alone”
benefit or alternatively on an accelerated basis. Under the accelerated basis
the amount of any benefit payable in respect of Serious Illness is deducted
from any life cover benefit.
Features:
-
Purpose:
Protect individual and dependants in the event of a defined serious illness
-
Protection:
Amount specified in policy
-
Savings:
No savings aspect
-
Benefit:
Only in the event of incurring the defined serious illness, during the term
of the policy.
Income Protection
Income protection is designed to provide the insured with a level of annual
income in the event that they are unable to perform their work related duties,
as a result of illness, accident or injury. The benefit payable is dependant
on the level of cover contracted for in the policy and is payable, on an annual
basis, until such time as the individual is capable of returning to work or
reaches retirement age. The maximum amount of cover available amounts to 75%
of current earnings.
In most instances Social Welfare payments are not likely to be sufficient to
cover the cost of living and any illness is likely to have severe financial
consequences for the individual and their dependants. Social Welfare payments
vary, but are in the region of €134.80 per month, and if you are self-employed
you are not likely to be entitled to social welfare payments.
Income Protection helps to bridge
that gap until the individual can return to work or alternatively retires. The
individual can select a policy whereby the benefit commences after a number
of weeks, usually 13 weeks, 26 weeks or 52 weeks. The shorter the commencement
period, the dearer the premium or cost will be. Payment of the benefit is dependant
on medical examination. In addition to providing you with salary protection,
Income Protection will:
- Pay you this income until you
return to work, or retire, or the policy reaches its end date.
- Guarantee your monthly premium
will remain the same for the lifetime of the policy, if you choose this option.
- Provide hospital cash if you
stay in hospital for 7 days or more.
- Continue your cover even if
you change jobs regardless of any change to your occupation.
- Qualify for tax relief at your
marginal rate, thus significantly reducing your monthly premiums.
Features:
- Purpose: Provides
regular income in the event of prolonged illness
- Protection:
Amount contracted to maximum 75% current earnings
- Savings:
No savings aspect
- Benefit:
Benefit arising from accident, injury or prolonged illness.
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