Thomond Asset Management Weekly Investment Commentary

Are you over insured?

What is the cost of insurance? The Irish mentality of ‘it’s better to be safe than sorry’ means many of us are paying too much for life insurance. However, since the recession that’s changed. Policies are being reviewed and many people are saving hundreds, even thousands of Euro as they realise they’re over insured. To save money on insurance, ask yourself, what cover is needed if something goes wrong?


Our Independent Financial Advisors have helped our clients make big changes – for many this starts with mortgage protection payments. Whether you’re taking out your first policy or renewing it after 15 years, it’s essential to shop around and compare insurance.



When you get a mortgage, you’re required to take out insurance to cover your debt if you die. The banks may make you feel you have to take mortgage protection out with them, but advise them you would like to compare insurance and shop around. Banks are often tied to one provider, for example AIB are tied to Irish Life and will only get you the best deal from them. However, life insurance is a shrinking market with increased competition and this is driving prices down.



While over insurance is one issue, it’s also important not to be under-insured.


During the boom years, many people purchased investment properties. While the banks require you to take out mortgage protection on your family home it is not essential for investment property. However, if you don’t have it and something happens to you, that debt doesn't just disappear. Your family will be left to pay, so it is advisable to be covered.



Life Insurance or Serious Illness Cover


The next areas to review are life insurance and serious illness cover. A life insurance policy provides a lump sum to your family if you die. It compensates for the fact that your income is no longer supporting the family. Similarly, serious illness cover is a lump sum to help support you and your family if you become very sick.



Again, review this policy frequently.



Client Profile 1


McCarthy family – saving money on life insurance cover


Meet the McCarthys; John is 41, Sheila is 39, and both are non-smokers with no major health issues. While John is farming, Sheila works as a nurse. They have two children, John Jnr (12) and Sarah (10).


They are looking for cover up to €300,000 on their mortgage, and serious illness cover of €150,000. See the table below for the type of cover they can get for a 10 – year term. The cheapest life insurance cover available is €30.05 from Zurich Life, while the most expensive is €37.07 from Caledonian Life (eSP)+.











CompanyLife Cover OnlyLife and accelerated serious cover
Caledonian Life (eSP)+€37.07€90.31
Canada Life€36.01-
Zurich Life€30.05€79.95
Friends First +€30.41€79.06
Aviva €34.43--
Irish Life +€32.01€91.59
New Ireland + €33.48€91.19


A difference of €7.02 may not appear huge, but consider that the McCarthys would be paying that every month for over 10 years.


The real difference they will be paying out €84.24 a year, which amounts to €824 over 10 years. Add in illness cover, where the difference between the cheapest and most expensive cover is €11.53, and that’s €138.36 a year- or €1,383 over 10 years.



If something happens to Jack, he wants enough of a lump sum to help Sheila run the house over the next 10 years and fund the children through college, until they graduate and start earning their own income. When the children get older though, they don’t need that level of cover so the policy should be changed.



Savings can also be made by deferring when the lump sum is paid out. Getting it paid out immediately after death is more expensive than a year later. This can mean saving up to €10 per month. Remember, if something happens then the mortgage payment protection will have kicked in so that debt will be covered. Your family might have enough savings to get them through that first year.



Income Protection


Another source of cover is income protection, which some people opt for if they can afford it. Basically, if you become ill, it will cover 75% of your salary. And if you cannot return to work, you’re covered until retirement. On top of that, there is a state benefit of approximately €10,000 as well as tax relief.



Before you take out this policy, it is advisable to think about the cover you really need, If you already have serious illness cover and something happens; you’ll get your lump sum fee. Will that be enough for you to get by on? If not, you may need to also think about income protection, which would be another source of money if something goes wrong.



Client Profile 2


Damien Hickey from Limerick is joint-owner of Concept Sign and Print. Between his business and life policy, he was over insured by €1500 a year.



“Before my wife and I got married, we each had our own house with mortgage protection, but when we went to write our will, we were advised that there was an issue with our policy. We approached Thomond Asset Management who advised us that we needed to change our policy to dual cover. They got us the best deal, which only cost an extra €4 per month, so I asked them to review a few more of our policies.



“My business partner and I started our company in 2009 and we took out policies with the bank such as public liability insurance, co-directors insurance and life insurance. When ThomondAM reviewed it, I was gobsmacked by what they said. We were massively over-insured. Our business policy was to the value of €400,000 but if anything happened we would only get a percentage of the net worth of the company – which was nowhere near that amount. They figured we were over-insured by €200,000, which was costing us €80 a month and nearly €1000 a year.



“On top of that, we had taken out key man insurance, so if myself or my partner died, a lump sum amount would cover employing someone else. Again, we were over-insured by about €20 a month. We were also over-insured on our individual life policies, costing an extra €60 a month. Our motor insurance policies and pensions were also renewed. Overall we saved nearly €1500 a year.



For more information please feel free to contact us on 061-462024 or email info@thomondam.com

Warnings:
    1. The income you get from an investment may go down as well as up. 2. The value of your investment may go down as well as up. 3. Benefits may be affected by changes in currency exchange rates. 4. Past performance is not a reliable guide to future performance.

This outlook does not constitute an offer and should not be taken as a recommendation from Thomond Assat Management. Advice should always be sought from an appropriately qualified professional.