• Donald P McKenna

Why it's always a good time to review your cover

Over the duration of our adult lives we often accumulate a number of life assurance policies all of which we may have accumulated for different reasons. For example, if you took out a mortgage to fund the purchase of your first or subsequent home, you most likely would have been required to put a life assurance policy in place (also known as mortgage protection) to satisfy the conditions of the loan.

At the time, you may have taken out additional policies or were possibly advised to opt for specific benefit features in excess of the basic level of cover required. Bear in mind also that the policy (or policies) you took out at the time might not have been the most cost competitive due to the lender not having access to the full range of providers in the marketplace.

As we grow older and our circumstances change, our protection needs change accordingly. Some of the factors that influence your protection needs include:

  • Number and age of dependants

  • Level of Earnings

  • Level of Debt

  • Type of Employment

  • Tax Planning

  • Affordability

Let’s look at these in more detail in terms of reviewing your protection needs.


Dependants

One of the key reasons for putting adequate protection cover in place is to ensure that your dependants are financially secure in the event of death (Life Assurance), contracting a serious illness (Specified Illness Cover) or being unable to work due to illness or injury (Income Protection). One of the factors to consider in determining the term or duration of a policy is the age of your dependants and their level of financial dependency on you. A general rule of thumb is to ensure that the end of the term of your life assurance policy coincides with your youngest child finishing third level education. If you’ve recently had a child, perhaps the term of your policy needs adjusting?


Level of Earnings

Whether it be for Life Cover, Specified Illness Cover or Income Protection, the basis for most recommendations is your income or a multiple thereof depending on the type of cover you need. If there is a considerable change in income, this should trigger a review of cover amounts. For example, if your income increases you should ensure your Income Protection cover tallies with your level of earnings.


Level of Debt

It makes good financial sense to have, as a minimum, sufficient cover in place to eliminate liabilities in the event of your demise. As we mentioned earlier, life assurance is often a condition of a mortgage drawdown, however, that might not be the case in terms of commercial borrowings. Therefore, it is worth reviewing that your levels of cover are sufficient and therefore avoiding a possible situation where your family may be forced to sell an asset to repay the outstanding loan amount. There could also be a situation where you have cleared a mortgage or loan and your requirement for a policy no longer exists.


Type of Employment

You may be one of the lucky ones who are part of a company scheme that provides death in service benefits and possibly Income Protection (also referred to as Income Continuance or Permanent Health Insurance). For the self-employed and employees who are not included in a company scheme, arrangements will need to be put in place on an individual basis. Checking with your employer what (if any) benefits are in place is a worthwhile exercise and one which can form the basis for the levels of cover required in reviewing your protection needs.


Tax Planning

While none of us feel comfortable discussing the topic, death unfortunately is inevitable and with that comes the estate that you leave behind. Inheritance tax can be significant depending on the size of your estate. There are exemption thresholds in which beneficiaries can receive amounts tax free, but these are relatively low and there are situations where a large Capital Acquisitions Tax burden can fall on surviving family members.


Affordability

In an ideal world, we would simply put the necessary cover in place and that would be that. However, policies come at a cost and therefore affordability must be taken into account when both recommending and reviewing your cover.


As our title says, it’s always a good time to review your cover. If nothing else, you will ascertain if you are adequately covered and/or you’ll assure yourself that the cover you have is still fit for purpose and represents good value. Why not get in touch as we are more than happy assist you in this regard.

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