We all have Death Benefit Policies, Why not Living Benefits?
In this week’s blog our Business Development Manager, Des Cahill, discusses living benefits on protection policies.
Most people have life cover and/or mortgage protection, both of which are extremely important and to a large extent are a necessity and a requirement to have a mortgage.
There is a wide variety of life cover options available and getting advice from your broker who can direct you to your best option should be availed of. Some policies can be used to offset future tax liabilities, some can be used in part as a form of savings, some cover both partners and so on and so on and so on.
Some people will seek a review of their pension plan (why everyone doesn’t insist on a one to one with their advisor once a year is beyond me) almost no one looks for their protection policies to be reviewed and altered as your circumstances change.
There is a large cohort of people who over the years accumulated several life policies without reviewing their overall cover. The reason is I believe is that because the cost per month is maybe 20 to 30 euro for each policy and that the extra cover isn’t a bad thing.
There is one common factor in all life and mortgage policies, you have to die before the amount is paid out. That is why they are referred to as Death Benefits.
Protection policies also include Living Benefits.
There are two main types of living Benefit policies specified illness and income protection.
In general, specified illness cover pays out a lump sum and income protection pays monthly payments until you are able to go back to work or reach the age of 65.
You absolutely should consult a broker before taking out either of the above as the array of options is vast and when the time comes to avail of the policy you will need to have had the correct policy in place.
For now, I only discuss Income protection. If you are unable to work due to illness what is your plan? How will you meet your financial commitments and those of your dependants?
If Covid has shown us anything its that elements beyond our control can utterly change everything.
It is important to note that income protection premiums have tax breaks applicable to them.
You can cover up to a maximum of 75% of your salary but remember you can cover enough to simply cover your mortgage. Most will receive government assistance of roughy 13k per annum. Payments kick in from 13 or 26 weeks and will continue until you get back to work or at the age of 65. While you are in receipt of income protection your provider continues to pay your premium.
As an example, this week I was able to quote a client, age 40, single. 25 euro monthly premium pre tax relief, will pay out 10K per annum (850 euro per month) at 26 weeks. This will supplement her employer’s contribution which drops at 26 weeks.
Those who have pension payments in place or have multiple life policies should consider using some of those payments to put in place some income protection which in turn will allow you to continue with your pension plan. The optimum age for taking out an income protection is betore age 45 -but policies can be taken out up to age 59.
In 2020 Aviva alone (other providers data for 2020 not yet available) paid out over €40 million spread over 2,000 income protection claimants in Ireland. For the first time ever, mental health was the number one reason followed by back issues. The current average term of payment is 5 years.
Living beneifts can make a real difference in your recovery and keeping your finances on track. Please see videos of Irish claimants and their real life experiences using their living benefits, here.
Author: Des Cahill QFA, Business Development Manager
Tel: 087 2801490 |E: dcahill@olearylife.ie |