life insurance

8vSport

Hi All

Just wondering if anyone can give me any information on taking out life insurance. We have getting a mortgage from our bank but need to take out life insurance. We are just wondering which route to go - either with a broker or with an online company, which is cheaper, or even with the bank? does anybody have any recommendation?
thanks

dotsman

Firstly, you need to decide if you want life insurance, assurance, or just mortgage protection.

At a very high level...

Mortgage Protection is a policy that reduces in line with your outstanding balance of the mortgage.

Life insurance is a policy that pays out the original balance if you die during the term of the insurance. It is more expensive than mortgage protection.

Life assurance pays out the full amount, regardless of when you die, be it tomorrow, or at the age of 100. (It can sometimes be cashed in early, depending on the specifics of the contract). As you can imagine, this is the most expensive option)

Example:

Say you buy a place for 300K and die 22 years later when there is still 100K owed on the mortgage.

• Your mortgage protection policy would pay just 100K
• The life insurance would pay the 300K (100K covers the debt, and the 200K goes to your next of kin).
• The life assurance would pay the same as the life insurance, but will pay it out regardless of when you die (the other two cease after the term of your mortgage).

This is a very high level, and there are lots of optional extras/clauses. Also, the distinction between Life Insurance and Assurance is very blurred today as the various types of policies intertwine. If you want to look into this in detail, I would recommend speaking to a Financial Advisor (as different people have different needs depending on age/family/wealth/illnesses etc, it can get very complicated).

If you just want basic cover for the moment (ie you have no kids/dependents and don't plan on any soon), then the online brokers are suitable.

For me (single, no kids, twenties), I just went with Mortgage Protection and got a very good deal with www.labrokers.ie. Like most online brokers, they give a very good discount for the first year. (Bare in mind your policy is a long-term decision, so don't just go for the cheapest year-1 policy). However, should a wife, kids etc come onto the picture, and I want to provide, not just for the mortgage, but also provide protection for my (as yet non-existent!) family, then I will replace this with a far more comprehensive package.

eagle_i

Some good advice there dotsman. However, I would like to stress that ‘Life Insurance’ and ‘Life Assurance’ virtually means the same thing. The Life industry both in Ireland and in the UK do not distinguish or specify a Life Insurance policy from a Life Assurance policy. So please do not get bogged down whether you are taking out a Life Insurance/Assurance policy – it makes no differnce. The most common term used to describe a life policy in Ireland/UK is ‘Life Assurance’, across the pond in the US it is Life Insurance.

Also, just to correct your definition of Life Insurance and Life Assurance. A life policy, be it a Life Insurance/Assurance policy pays out the amount of cover that is in place at the time of the claim. That amount of cover (aka sum assured) can be a higher than the original amount where a policy includes ‘indexation’, or the same amount of cover as was at the start (ie. Level sum assured), or it can be lower than the original amount of cover (Decreasing sum assured). The technical differences between Insurance/Assurance are whether an event may happen or must happen during the life time of a policy, as follows:

Life Insurance, refers to insurance against an event that may or may not happen. Eg. A life policy that pays out only if the life assured dies within a specified term (10/20 years). This is an event that may or may not happen.

Life Assurance, refers to insurance against an event that must happen. Eg. A life policy that only pays out whenever the life assured dies. This is an event that must happen.

Going back to the OP’s original question, I whole heartily agree with dotsman, if you are unsure what type of policy to take out then seek advice from an independent adviser. Yes your circumstances determine what type of contract you should take out, like whether you are single or you have financial dependents (spouse/children/elderly parent etc...), these all have an influencing effect. A quick session with a financial adviser will determine the best course of action to meet your circumstances. The financial adviser will complete a financial factfind with you, as such a financial health check. The advice/recommendations given by the financial adviser will be based upon the information you feed him/her during the factfinding session. Obviously the more information you give the more appropriate the recommendations will be to your circumstances – well in theory anyway, one adviser’s advice may differ from another!

The cost of this advice/factfind session is usually free, provided you complete the business with that adviser. The adviser is paid a commission by the insurance company for the placing of the business through their agency. The cost of the product is no different from going direct to the insurance company or placing the business through the adviser/broker. Where you go direct to the insurance company, you are simply charged the standard premium and as such the insurance company pockets the commission. Whereas, the adviser is paid the commission element with no additional cost to you. This is only fair, you are getting a full financial check with the adviser, he/she is giving you their time, expert advice and a full written report/recommendation. After all, you wouldn’t walk into a Doctor, expect him to complete a full medical health check on you and then you go direct to the hospital to have your ailment treated without the doctor imposing a fee.

Of course you can skip the advice route and go the ‘Execution Only’ route. Sounds more painful that it really is! ‘Execution Only’ means you do not need any advice and you know exactly the type of product you want. Therefore you can avoid the adviser route and purchase your product online from a discount broker. Some of these online discount brokers are offering up to 90% refund of the first year’s premium. Usually you need to pay the first years premium upfront and you will get the refund back within a month or two of the start of the policy. If you pay the premium monthly, you will receive the refund around month 13 (1 year 1 month) after the start of the policy. Effectively the broker is refunding a portion of the commission that they earn for placing the policy. Going direct to the insurance company does not necessary mean you will get the same discount, in fact I am not aware of any insurance company giving such discounts, as I said above they simply pocket the commission element!

How can a broker give such discounts? Simple, they did not have to devote any time doing a factfind exercise with you, investigate/search the market for the most appropriate product and spend time writing out a full financial report with recommendations - the days of one size fits all is long gone!. Time is money, and an execution only purchase saves that time and ultimately you receive the benefit of the time saving exercise by way of the refund! This type of purchase is not for everyone, while there is nothing stopping anyone from going this route, you need to be sure of what you require and what best suits your circumstances. There are so many variations of life/investment/pension policies, it is really not for the light hearted, but someone who has reasonable knowledge of financial products. As the old adage says, ‘If in doubt, DON’T!’

Finally, I am not a great believer in the banks route. I do have a biase toward the independent adviser or if one is capable of assessing their own needs, the Execution Only route!

8vSport

thanks for your help guys, i really appreciate it. iv been looking into it on the net and we are meeting with a financial advisor on friday so we will get all the information we need and ask them any questions that we need too.
it is a bit confusing at the start but my head is coming around to it now!!