Finance news today: Properly assembled Life Assurance is at the heart of prudent financial planning. There may be different motivations for taking out life cover, family protection when a couple’s children are young, to cover borrowings, to leave behind a moderate sum for Funeral expenses, to provide an inheritance to one’s spouse or children, or for a child with Special Needs. The reason for taking out Life Assurance will often dictate the amount of cover and term of the plan, within that person or persons respective budget.
There can be common misgivings among people with regards to Life Assurance. The cost of the plan, payments into the plan are often regarded as ‘Dead Money’. Life Assurance is in essence, risk management. It is to protect against a scenario for example – a spouse or spouses passing away while their children are young and not financially independent. It is there to provide financial peace of mind in times where a families world could be turned upside down and financial worries or concerns are the last thing they need. This article seeks to illustrate how the whole of life continuation benefit plan blends the principles of Life Assurance with an unrivalled value for money and longevity cover element.
At our brokerage, we believe financial planning a process where the need is identified and the specific product chosen is the vehicle or method to provide for that Financial Planning need. Whereas the Whole of Life Continuation Benefit is a specialist plan which brings a unique structure and cost benefit analysis to Life Cover and is a blend between a Term Cover Plan and Whole of Life Plan, capturing the best aspects of each without some of the drawbacks or obscure terms. Below I will illustrate two different scenarios where the plan can be utilised by people in different stages of life with the core goal of the plan differing. Whole of Life Continuation Benefit costs more than a normal term plan, this will be illustrated also. The plan is only offered by New Ireland Assurance.
Case Study 1
James and Anne are 35 and are looking at Financial Planning. They have identified Life Cover as one of their priorities, they have 2 children under 8 and want to provide some cover if one or both of them were to pass away. They are both income earners and have the same level of salary. They have earmarked a budget for Life Cover of circa 120.00 euro per month for their life assurance. They have enquired whether there is any return on the cover after the term has elapsed. A conversion option means that a plan holder can extend the term of their policy without medical evidence for the current level of cover or less. However, they are priced at that age. They would like a certain level of cover later in life also, after the children have become financially independent.
Example of how the plan works:
- Dual Term Life Cover – 350,000
- Dual Whole of Life Cover – 50,000
- Term – 25 Years
- Conversion Option attaching
- No Indexation
- Monthly Premium – 124.83
- Total Cost of the Plan – 37,449
- Guaranteed Pay-out – 100,000
Here the plan acts as a regular term life cover plan, it provides cover in the 25 Year term if one or if both spouses were to pass away, 400,000 would pay-out on each life. The unique nature of the Whole of Life Plan comes to pass in year 25., James and Anne have both now reached their late 50s and their children are now financially independent and they do not need the same level of cover and do not want the added expense of Life Cover approaching their 60s. The Whole of Life Continuation Benefit means that they can end the plan after year 25 and stop paying premiums but the 50,000 whole of life cover will remain in place on each person. Therefore the plan has a Guaranteed Pay-out of at least 100,000.
As illustrated above the plan provides cover in the shorter term with longevity cover after the term of the plan. In terms of cost benefit analysis the value for money element of this plan is unrivalled. 37,449 cost with a Guaranteed Pay-out of 100,000 (50,000 on each life whenever death occurs). With a 400,000 level of cover throughout the 25 Year term. Of course, this is still life cover so only pays out when John and Anne were to pass away.
They could have taken out a term plan for 50.86 per month for 400,000 and exercised their conversion option to extend the plan without medical evidence. However they would have to maintain premiums for this plan consistently. The conversion option is on the Whole of Life Continuation Benefit contract also, so they retain this flexibility.
A Guaranteed Whole of Life Contract would also be available but again, this requires premiums to be maintained throughout the plan to retain cover, for example premiums being maintained into their late 70s or 80s. The Whole of Life Continuation Benefit allows them to retain 50,000 on each of them and not pay any further premiums after year 25. Their premium and cover is locked down throughout and does not increase unless they choose the indexation option, which can be attractive but costs significantly more. A person or couple can choose for their premium and cover to go up by 3% per annum. This means that after the term has ended the whole of life cover remains in place and continues to index at 3% each year, even after they have stopped paying premiums.
Why this type of plan?
There are 4 crucial differentiating factors of this plan to others. This plan may not suit everybody’s Financial Planning and the premium is higher than a normal term contract and the plan has certain restrictions. 50,000 is the max amount of whole of life cover a person can start at and indexation costs significantly extra.
4 Distinguishing Factors
Premium stays consistent like a term plan and cannot be amended like a reviewable whole of life plan.
Cover remains after the plan has ended
No premiums required to retain cover
Guaranteed Max Cost and Minimum Pay-out from the plan.
Guaranteed Cover in Trust for Children
This plan can be very beneficial for parents who may have a child with Special Needs. There may be a concern that they will require funds for care after they have passed away. This plan allows the parents to have cover in place in the short to medium term and when their income has dropped later in retirement, for example this plan can mean they have a certain amount of cover in place which they can leave in trust for their child. The plan provides a guarantee in a cost effective way and I think it can be hugely beneficial in providing financial peace of mind in this scenario where the need for life cover remains later in life.
Case Study 2
This will be a more brief example. Thomas & Mary are 50 and they want to restructure their life cover and they want to discuss elements which will pay-out whenever they pass away. They plan to retire at 65 and there will be a considerable decrease in their income when they do. They would like a certain level of cover until then and a reduced sum post retirement but do not wish to have to maintain a high premium post retirement.
- Dual Term Life Cover – 70,000
- Dual Whole of Life Cover – 30,000
- Term – 15 Years
- Conversion Option attaching
- No Indexation
- Monthly Premium – 167.35
- Total Paid In – 30,123
- Guaranteed Pay-out – 60,000
This plan provides 100,000 cover for the 15 years with the conversion option to extend or they can end the plan and 30,000 life cover will remain in place on each of them and no more premiums would be payable. The cost benefit analysis here is quite strong. Like James and Anne both spouses here are non-smokers.
The Whole of Life Continuation plan can in essence pay for itself and is an innovative way to structure Life Cover. The policy doesn’t only pay-out if the policyholder dies within a certain timeframe, it provides long term cover even after premiums have ceased, with the cover in the above examples outweighing the overall cost. The plan gives the policyholder flexibility and provides for the changes in the needs and goals of life cover evolve. This plan is a unique blend of different types of cover encapsulating their strong elements. It is a long term way to assemble Life Cover. If you would like to discuss this or other areas of Financial Planning our details are outlined below. Read more finance news today by clicking the button below.