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whole-life-insurance

If you have never read one of my articles before, read this. This is something I am both passionate and anger about. Read on.

I was reading the weekend papers when I came across an article titled “Life Policies Not Sold Unfairly”. The bases of the article is that in the last 5-years around 830 customers complained to the Financial Services Ombudsman over what they believe was the mis-selling of “Whole of Life” policies. Interesting conclusion to the article is that not a single complaint was upheld.

Since I been given workshops all around Ireland one of the points I always make, and it is even written in Financial Wellbeing’ Trust Planning Workbook, is to make sure you understand the type of life cover you have and in particular if you have a “Whole of Life” policy.

The issue I have with these types of policies is that on face value it looks a perfect fit. You will always receive a pay out when your cover is alive, low premium when you first take it out and you will also build up savings within the policy that you can access.

What shocks parents is when they find out their policy is reviewed, typically on the 10th anniversary and then every 5-years afterwards. A review is an insurance term that means expect to pay more!

In my experience, I have only ever see the cost rise substantial in particular when parents are over the age of 55.

Just to give you an example, I had a lady who was 73-years old when the insurance company wanted €497 per month for €10,000 worth of “Whole of Life” cover. When she initially took out her policy with the Bank she had over €200,000 worth of life cover but as each review came around she was forced to reduce her cover and the premiums kept rising. I was very upset and this lady was distraught as her daughter was now in part time residential care and this policy was her main asset she wanted to pass on to her daughter. She had to stop the policy as her state pension did not allow her to pay the premium and she receive nothing back in return for all the thousands she put in to the policy over the years.

Other mistake I commonly see when it comes to life cover is parent are not aware of the extent they are already covered at work. Some parents will have up to four times death in service which means if a parent passes away while still an employee then the company will pay out up to four time the salary of the time (i.e. €50,000 salary = €200,000 lump sum pay out). The next question I often get is, does the employee have to die in work? I tell parents NO, you don’t have to drag their body in to the building; they just have to be employed at the time!

The biggest mistake parent end up making is getting advice from a general financial advisor, who typically will advise parent of special needs children to take out more life cover on the bread winner not understanding the dynamics of a special needs family and the importance of the parent in the Carer’s roll. They also lack the expertise around how to fund a trust through “Trust Life” policies and the enormous benefit of having a “Trust Life” policy in place to better secure the future. Therefore recommend cover that is not right for a family with a child with additional needs and this will only become obviously later in life.

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This article was prepared by Allan Cuthbert, a Special Needs Trust Planner. If you have a Trust Planning question, feel free to email allan@financialwellbeing.ie or call 021 482 3635. To learn more on how to protect your child’s future, check out www.financialwellbeing.ie