As we live longer, life insurance goes down

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Buying life insurance is like feeding a child germs. Nobody wants to do it, but you know you have to do what you’re told and swallow it.

The reason is that you are forced to think about your own mortality; what happens if you die. If you die leaving a spouse, kids and a heavy mortgage, that’s even worse, so we tend to forget about it, buy whatever product the bank shoves in front of us and forget about it.

But here’s the thing: prices have fallen sharply over the years as we live longer and healthier lives..

So the change could be beneficial in lowering the cost of what you’re paying for, whether it’s just mortgage cover, family life insurance, or critical illness and income protection cover.

Mike Knightson of KM Financial says a change in personal factors, like quitting smoking, can make it beneficial to look around the market now and change policies. You may qualify for a lower premium.

“If you have mortgage protection, which pays off the home loan if you die before the end of the term with your lender, there are probably savings to be made now,” he says. “You might have the wrong type of coverage in place. Mortgage protection is designed to decrease as the loan decreases.

Many people have been sold “level” term (which doesn’t decrease) or worse, lifetime coverage, which continues long after the mortgage ends. Both are much more expensive than the decreasing term type of policy, which is the minimum required by a bank.

For a couple (aged 51 and 49) with 14 years remaining on their mortgage, who are paying €75.16 a month living together for an original mortgage of €225,000 taken out four years ago, Mr Knightson says that they could save by changing.

“The remaining mortgage would now be €180,000 and they can get double cover (i.e. cover over both lives) for just €53.92 per month or, by getting a broker discount with market leader Royal London, €45.83.” This is a saving of €4,931 over the duration of the mortgage.

Price match

Many of the major insurers promise to match or beat their competitors. So even considering switching can save you money right away.

“There are other options like double coverage, which some companies offer at the same price as joint life,” says Knightson.

The difference is that double coverage pays twice because each person on the policy dies. With common life, it is he who dies first. The advantage is that the bank can only take what is due to it; so children are protected if the unthinkable happens to the second parent or both together.

Does your coverage meet your needs?

One of the most common issues I have with life cover is that the policy in place is not fit for purpose,” says Knightson.

“For example, you have indexed term insurance policies earmarked for mortgages, your life coverage and premiums go up every year, and your mortgage goes down. If you consider that the policy is there to do a specific job, then excess coverage doesn’t make sense.

Renewable policies: it’s time to change

Years ago, products were sold on a unit-linked, lifetime basis. The intention was good: you kept the cover forever, the premiums were invested and everything was reviewed every five years. The problem? They cost a fortune and if the investment strategy is not followed, the policyholder receives a letter asking him to increase the premium.

“I’m halfway through a review for two clients and to maintain coverage for another five years, the premium goes from €110 per month to €202, with a huge likelihood of it going away again in five years,” says Mr. Knightson.

“This policy started at €40 per month 20 years ago. If you have a policy like this, heed any communication that warns you of a shortfall in coverage or a premium increase, because when a review takes place, you have little time to take a decision on what to do.

“It’s rare you see one linked to a mortgage these days, but there are a few and it takes the shock of a 100+ pc rise to focus the mind.”

The solution is to get a full review of your coverage and your needs. There are many seniors with adult children who maintain tens of thousands of life insurance policies for their entire lives. Why? Its purpose was to replace income if one of them died while the children were young and the mortgage was in place.

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