What % of household income do you spend on life/death type insurance?

Gonzales

I'm currently planning for our future. I have Death, total permanent disability & poor Critical illness coverage for my family. In the event of my death (or my wifes) the payout would cover 2.5 years of expenses for my wife & son & half the mortgage.

This adds up to about 3% of our household income spent on insurance premiums. my agent has quoted a rule of thumb of between 10% to 15% as a norm.

1) Whats the opinion here on the 10-15% figure
2) I have not started planning in earnest for our retirement (we are 34) or my son education (he is 2) - any advise on the matter is appreciated.

thanks for your opinions & experiences.

Your first priority should be to insure yourself and your spouse for the full value of your mortgage debt. A mortgage protection (decreasing term) policy is the most suitable product for this.

Additional Life Cover of 8- 10 times your salary should be sufficient for most couples but this will depend on a) what other assets/liabilities you have b) affordability and c) whether there are any death-in-service benefits through employment. Specified illness cover is expensive and I would think that 3 - 4 times salary as a sum insured would be okay. Convertible term assurance is a good product for these requirements but keep these policies separate from the mortgage.

I would not subscribe to the notion that you spend 10/15% of your income on these products. Every ones circumstances are different.

If you are self-employed, or in employment and not a member of a pension scheme (in Ireland) you should be able to get tax- relief, at your highest marginal rate, on the life insurance convertible term policy if it is set up correctly.

I would sort these out first and then move on to the retirement and savings planning.

Gonzales

Deleted User wrote: »

Your first priority should be to insure yourself and your spouse for the full value of your mortgage debt. A mortgage protection (decreasing term) policy is the most suitable product for this.

Additional Life Cover of 8- 10 times your salary should be sufficient for most couples but this will depend on a) what other assets/liabilities you have b) affordability and c) whether there are any death-in-service benefits through employment. Specified illness cover is expensive and I would think that 3 - 4 times salary as a sum insured would be okay. Convertible term assurance is a good product for these requirements but keep these policies separate from the mortgage.

I would not subscribe to the notion that you spend 10/15% of your income on these products. Every ones circumstances are different.

If you are self-employed, or in employment and not a member of a pension scheme (in Ireland) you should be able to get tax- relief, at your highest marginal rate, on the life insurance convertible term policy if it is set up correctly.

I would sort these out first and then move on to the retirement and savings planning.

G, thanks for the advice. 8-10 times our individual or combined salaries?

Convertible term assurance is a new term to me can you expand on this?

thanks.

Drumpot

Gonzales wrote: »

G, thanks for the advice. 8-10 times our individual or combined salaries?

Convertible term assurance is a new term to me can you expand on this?

thanks.

Converitble Term Assurance is normally only slightly more expensive (percentage wise) to Term Assurance.

The convertible part of the assurance is that you can (these are the usual terms and conditions, may differ from some companys), at any stage during the term of the policy, convert the policy into a whole of life policy or increase the term of the cover, WITHOUT MEDICAL EVIDENCE.

E.G. €100,000 over 20 years with conversion option.

At any stage during that term (say year 19), you can apply for an increased term , lets say another 20 year Term assurance policy (subject to the companys maximum age for cover) and they cannot ask you for proof of your medical records.

A whole of life policy is, as it sounds, for the whole of your life. There is generally no term on these policies but they are more expensive.

I think the best way to work out how much cover you should have is by working off the assumption that you or your partner get Ill or die tomorrow. What liabilities would you be left with, what can you afford and what would leave you struggling.

If your mortgage costs €1200 a month and this will be paid off in either event, take that as a salary (ie minus this amount off from salary lost from either partner). Same goes for loans.

Factor in that in a death scenario, certain costs will reduce . . Food, Car insurance, holidays etc. I know it sounds morbid, but its the best way of calculating out how much assurance you should have. Then work out how much you can afford and choose the assurances that would cover the most important bills.

Not sure how the agent got 10% - 15% as a rule of thumb, I have certainly never heard that one before.

The following is a list (and brief description) of the different types of Life Insurance policies available on the Irish market.

Mortgage Protection – Sometimes called ‘Decreasing Term Insurance’ as the level of cover decreases as your outstanding mortgage balance decreases. Cheapest form of life cover and the premium stays the same for the duration of the policy.

Term Insurance – You can pay a fixed premium for a fixed sum insured over a specific period. You can index link the policy if you request this at outset. The plan can be written as a single, joint or dual life policy.

Convertible Term Insurance – Same as Term Insurance except you have the option to ‘Convert’ the policy to another policy ‘without medical evidence’ during or at the end of the term of the plan. The premium rates applied to the ‘converted’ policy would be those applicable for someone of the same age (at date of conversion) and irrespective of your state of health. There can be no extra charges on the premium if your health had changed over the period of the initial policy.

Pension Term Insurance – If you are self-employed or in employment but not a member of a pension scheme you can take out a Term or Convertible Term policy and claim tax relief on the premiums (subject to certain revenue maxima). Company Directors can also do this whilst getting the company to pay the premium. You cannot assign this type of policy as collateral for a loan.

Whole-of-Life (guaranteed) – You pay a fixed premium for a fixed sum insured until death. You can index link the policy, if requested at outset.

Whole-of-Life (unit-linked) – The premium you pay from the outset is guaranteed for an initial period of 10 years and then the policy is reviewed. The insurer may ask you to pay an additional premium or reduce the cover if they feel that the current premium is not adequate to pay for the cover until the next review date (5 years later). The cost of the cover increases as you get older.

Gonzales

G,
thanks or the comprehensive answer, I'm gonna sort out the mortgage cover to 100% as my first step.

Cheers!