Life Insurance Myths – You’ll be surprised!
nd Nov 2016 |
Let’s face it, none of us want to think too hard about our own mortality, but that shouldn’t put us off getting to grips with life insurance and how important it is in protecting our loved one’s financial future. Here, I want to dispel some common Life Insurance myths.
1. Life Insurance is dead money – excuse the pun, but many people think that they will outlive their cover and thus the premiums they paid over many years, is money down the drain. This is not the case, as many life insurance policies provide free additional benefits known as “living benefits”, throughout the course of the policy, plus you have 2 options to maintain your cover to a ripe old age:
- opt for a guaranteed whole of life cover (although expensive) once, you pay the premiums the cover continues regardless of age.
- Take out a cheaper term life insurance policy, to cover you up to your 90th
The “living benefits” to which I refer include free: physiotherapy, cardiac rehabilitation, and second medical opinion, while optional benefits such as hospital cash, and personal accident benefit are also made available.
Beyond this, few people are aware that if you take out life insurance on yourself or your spouse free children’s life cover is generally provided and if you opt to include serious illness cover on the policy holder, again free children’s serious illness cover is normally a feature.
The life expectancy for the Irish man is 78 and for a woman 83. (Source Central Statistics Office – report 2012)
2. My job already provides my life cover
Typically, where your employer provides life insurance cover is no more than 4 times your annual salary, this might help clear debts, but it certainly allows your dependents to maintain a similar lifestyle if you were gone.
The recommended average level of life cover for a needed by most families on the man bread winner is 8-10 times salary. (Source Central Statistics Office – report 2012).
3. Life Insurance is expensive
Term life insurance which is available at a fixed price up to as far as your 90th birthday is not expensive and in fact most people are surprised at how inexpensive it is and about the free benefits it often includes.
Example: Male aged 40, non-smoker €400,000 life cover to age 85:
€19.25 per week (Onequote.ie – term life quote: Nov 2016)
4. Life Insurance is inflexible
Nowadays, even with life insurance policies offering fixed premiums i.e. term life insurance policies, certain life insurers allow you to increase your benefits on the occurrence of certain life events, such as moving house, home renovations, or the birth of a child.
If you have opted for a large amount of life up to say age 65 and want to reduce it down after you retire and have your mortgage paid off, that’s easily done by including what’s known as a continuation option when you originally take out your policy.
A continuation option allows you to extend cover under a new policy, but without the need to provide all fresh medical information at the time, this allows the flexibility to extend your cover to age 90 next birthday and to reduce, or maintain your cover levels as you see fit.
If for some reason you miss your life insurance premiums, some life insurers allow from 3 -5 months consecutive missed premiums to be brought back up to date, to allow cover to be maintained.
5. I have mortgage protection, so I didn’t need separate life insurance
Life insurance is about protecting your family’s future should the worst happen. Although Mortgage Protection is life insurance it is payable to the mortgage lender and not your family, it’s not as if your family can sell the house to live off the money.
6. My family have other assets, so I don’t need Life insurance
If you have a lot property that, that would be free of any mortgage loans on your debt, you may think well, that’s enough to be leaving behind. Your partner will need the family home for all their lives and other property and assets could result in an inheritance liability. Here is where a whole of Life Insurance policy could take that money back from the tax man, although in some cases additional life cover may not be needed in the traditional sense, a special whole of life policy would be most likely required.
7. Getting quotes and filling out forms is complicated
Not any more, first of all, it’s easy to obtain an instant online market comparison quote, so you no longer have the hassle of making appointments and taking hours out of your day. Application forms can be filled out online and you can use email, phone, or live chat when need to speak with your broker.
8. I will have to do a medical exam
Dependent on your age and cover level very few people are asked to do a medical, e.g. a 51-year-old would need to be looking for over €750,000 life cover, before a medical would be automatically requested with most life insurers.
Of course current health issues, or a prevalent family history of certain diseases may change this, but even in these cases a nurse medical in the comfort of your own home or office can most often suffice.
9. Life Insurance benefits are taxed
Life insurance benefit is paid out as a tax-free lump sum between spouses. If you are a surviving spouse OR surviving civil partners taking an inheritance from your deceased spouse or civil partner, the inheritance is completely exempt and, no matter how valuable, will not be liable to Inheritance Tax.
However, others you inherit the money after your death, depending on their relationship to you, may have to pay inheritance tax. How much tax they pay depends on how much they inherit and Revenue rules at the time of your death, as of from 12th October 2016, a son or daughter can inherit up to €310,00 before any tax is due.
10. I am too old to get life insurance
Most people don’t realise that you can take out fixed priced term life insurance (the cheapest kind) right up to your 75th birthday.
A non-smoker age 75 next, could have €25,000 life cover for a 10-year term for: just €13.56 PW (Onequote.ie – term life quote: Nov 2016).
Life Insurance is now more affordable than you think!