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Financial Protection for Young Families

What have Kylie Minogue, Mr T, Lance Armstrong and Jade Goody have in common?

When you are starting a family it can be one of the most financially daunting periods of your life. The added responsibility to provide for your little one means you start to think about your finances in a whole different way.  Planning for the future becomes much more necessary than when it’s just the two of you going from one pay cheque to the next!

The first step in planning for the future is thinking about the unpleasant thought of what would happen if either you or your partner should pass away or suffer a serious illness.

Such a loss has a devastating emotional effect but think for a moment about the financial effect – how would your family continue to pay for their standard of living? What about future costs like education or weddings? Would they be left with debts to pay? Would they have to sell the family home to survive?

If it’s a serious illness you suffer, what about medical costs should you or your partner be unable to work and earn and income? You might qualify for Social Welfare disability payments, however, this is currently €204.30 per week (€10,623 per year). How long could you last on that?

If there was a simple, relatively cheap way of providing for your family – wouldn’t you do it?

The simple answer to these questions is to have an insurance policy to protect your family in the event of these things happening. Everyone insures their car just in case they have a crash – we all hope never to have to claim on a policy but it gives great peace of mind to have it!  Life assurance can provide your family members with the resources to maintain their lifestyle when you die or suffer a serious illness. It can replace some or all of your income. It also can pay off debts and cover funeral costs. It can even help fund longer-range needs like your children’s education.

Research from the Financial Regulator shows just 40% of Irish adults have some form of life cover.

  • 36% said they had no idea how they would cope financially if they or their partner suffered a serious illness
  • 33% said that the healthy partner would have to work two jobs
  • 27% said they would sell their home or downsize to cope

Already got mortgage life assurance?

Anyone with a mortgage will have mortgage protection life assurance in place – this type of policy is normally on a decreasing basis which means that over time as the mortgage is paid off, the amount of life assurance decreases too. Many mistakenly believe this is all the life cover they need. Yet if you think about it, all it does is clear your mortgage, it wouldn’t provide any income for your dependants to live on or clear any other debts you have.

When you have a family it is important for you both to have additional cover, separate to your mortgage protection. If one of you is a stay-at-home parent, he/she provides vital household services that would be expensive to replace eg childcare or running the household.

How much cover do I need?

The real question is how much do you think your family would need if you were gone? Is €100,000 enough? €200,000? It all depends.  Try working out how much money will my family need after my death to meet immediate expenses like funeral expenses and debts? How much money will my family need to maintain their standard of living over the long run?

It can be a pretty complicated exercise to come up with a figure and there is always the balancing of trying to match what you need with what you can afford. Just because you can’t afford the €500,000 cover you might need to maintain your current lifestyle doesn’t mean you shouldn’t put any cover in place! The best thing is to sit down with a professional adviser and work out the cover that fits into your budget.

Concerned about the cost?

Life assurance premiums are calculated based on your age, sex and medical history, it is generally cheaper to take out cover as early as possible in your life – don’t put it on the long finger as it will cost you more in the long run! The example below shows the difference in cost for insuring a female, non-smoker, aged 25, 30 and 35 – it nearly doubles!

Age 25 Age 30 Age 35
Life & Serious Illness Cover €100,000 €100,000 €100,000
Cost per month €19.17 €25.28 €34.72
Note:
Quotes are for Illustration Purposes Only. Illustration Dated 17/07/2009, premiums subject to change. These costs are subject to confirmation by the appropriate insurance company on acceptance of a completed application form.

Reviewing your cover

It is important to regularly review your cover as your circumstances change. You might be earning more, have more children or have paid off debts which no longer need to be covered. Life assurances prices and products also change so it is vital to review every couple of years to make sure you are still getting the best cover you can afford.

A final thought…

So, have you guessed what it is that Kylie Minogue, Mr T, Lance Armstrong and Jade Goody have in common?

They are all famous, relatively wealthy and have suffered a serious illness.

Below are some statistics to consider – sometimes its easy to think we’re invincible and illness won’t happen to us. Starting a family makes us see the world in a whole new way… It is so important to have the right amount of Life cover to protect your family’s standard of living. Speak to your partner TODAY to about your life cover and make sure your family is financially secure.

  • Irish Life paid out €16 million on 167 Life cover claims for accident related /unintended deaths in 2008
  • 45 of these were road traffic accidents.
  • 46% of all Life cover claims for claimants under 40 were results of accidents.
  • Irish Life paid a death benefit of over €200,000 as a result of a road traffic accident where the plan had been taken out less than 2 months previously.
  • Almost 1 in 4 of Irish Life death claims were on plans less than 5 years in force.
  • Almost 50% of death claims were as a result of malignant cancer.

Money MarkMoney Mark can be contacted directly on moneymark@mpis.ie if you have any questions about the above post or any other personal finance issues. Mark Hopkins is a Qualified Financial Adviser and his company Mortgage Pension Investment Services (www.mpis.ie) is regulated by the Financial Regulator.

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