Opes Wealth Trust has a unique approach to risk assurance and protection planning. We view protection planning as a vital component in building a long-term wealth management strategy. When providing integrated financial advice we examine the level of cover and the term of the required cover on an annual basis. The benefit of this approach is to ensure that our clients have:
- the right types of cover
- the correct level of cover
- the most cost-effective cover
We can keep the cost of protection to a minimum by setting the term of the cover to specifically incorporate your wider financial plan. This, coupled with reviewing insurance providers in the market, provides us with the ability to price up your needs in a comprehensive and professional manner.
Why the need for protection?
It is essential that appropriate protection is in place for such unfortunate events as an unforeseen accident, injury, illness or death. With the appropriate cover in place you can guarantee that you will be in receipt of an income if you are unable to work, or that there will be a cash lump sum to support your dependents on death that can help protect your personal assets, business interests and your family’s standard of living.
Types of Cover
There are two basic needs that you can insure yourself for, namely illness/disability and death. There are many different types of protection that service these two needs which can broadly be summarised as follows:
Most people don’t think of their income as an asset, despite the fact that it pays for everything else – the mortgage, bills, children’s education, insurance and all other lifestyle expenses. The question we need to ask ourselves is how could we afford the basic living expenses if we are unable to work due to illness? This is an especially important question for self-employed individuals or company directors as they may not be entitled to any social welfare benefit. For those entitled to welfare benefits the level of state benefits in the event of disability or illness is unlikely to come close to the required income to maintain a lifestyle enjoyed when fully employed.
Income protection cover is specifically designed to protect your income in the event of you being unable to work due to sickness, accident or injury. Protection of up to 75% of your income is possible. Tax relief is available on premiums and these premiums can be paid either by individuals or by their employers.
Serious Illness Cover
This type of cover protects the insured against serious illnesses that are very common in society. Bad as the physical and mental trauma of serious illness might be, it is accentuated by additional stress and financial hardship if you cannot work and, through lack of sufficient income, cannot maintain the standard of living that you and your dependants have enjoyed up to that point. Serious illness cover pays out a tax free lump sum in the event of such an occurrence.
As the name suggests life assurance provides a lump sum benefit to your beneficiaries/dependants in the event of your death during the term of the contract. There are a number of ways that this type of benefit can be structured.
Level Term Cover
This provides a set amount of benefit for a specific time frame, usually at a fixed cost for the term of the policy. Premiums are not, in general, tax deductible but, as a result, benefits are tax-free. At the end of the term, the policy must cease and there are no further benefits. There is no surrender value with this type of product.
Mortgage Protection or Decreasing Term Assurance
It is a requirement for many lending institutions that life cover is in place in the event of death so that an outstanding mortgage on a property is paid off. For a capital and interest mortgage (not an interest-only mortgage) the level of life cover will be the same level as your outstanding mortgage amount at the outset. The level of cover will decrease in line with mortgage repayments made throughout the term of the loan and policy. In the event that a joint mortgage application has been made, then a mortgage protection policy will pay out the sum assured on the first death. As this cover decreases in line with the reducing loan balance it is often the least expensive form of life assurance.
Convertible Term Assurance
Convertible Term Assurance also pay out a tax-free lump sum on death but, unlike the other types of life cover, it allows you to extend the cover beyond the term of your existing policy without any medical underwriting. It is more expensive that level term assurance as you are paying a higher premium for the option of extending your cover in the future regardless of your state of health.
For business owners and senior employees, insuring that the business is appropriately protected is extremely important, as failure to adequately protect the business against unforeseen events can have a devastating effect on the business and its shareholders. Shareholder/partnership protection and key person insurance are the two main types of insurances that most business owners or shareholders need to consider.
Both shareholder and partnership protection have the same essential function – to allow the remaining directors or partners of a business to buy out the deceased partner’s share of the business from the next of kin with the proceeds of the insurance policy that was in force on the partner’s/director’s behalf.
For example, if the value of a business is €4 million and there were 4 partners, each would be insured for €1 million. In the event of death the insurance policy becomes available to the company to pay the value of the business to the deceased’s estate. Therefore the business does not need to sell assets or raise a loan to fund the €1 million cost.
This is hugely important as it means the company does not have to withdraw money from the company or take out a loan to buy the deceased partner’s/director’s share. It also provides for the partner’s/director’s next of kin and avoids any potentially dangerous legal proceedings.
Key person Cover
Key person insurance protects the business and hence its shareholders against any potential losses in the event of a key person to that business dying. The level of cover is typically valued based on the expertise, knowledge, experience and contacts that key person may have or alternatively on a multiple of the profits the employee creates for the business. The policy is generally effected in the name of the business whereby the beneficiary is the business. It is not for the benefit of the individual’s estate.