Everyone who has someone who depends on them financially should have some Life Assurance cover on their own life. The premise is simple; in the event of one’s death a tax free lump sum is paid out and this is a very welcome payment for spouse / family.
The payment of a tax free lump sum ensures the family can maintain their current lifestyle and whilst it will never replace the loss of a loved one it does help to alleviate the financial pressure that would arise on such events….
But how much Life Cover should we have?
Firstly no widow has ever said “I wish my spouse / partner had less Life Assurance” but there is a trade-off between having more than sufficient life assurance cover and paying for the cover – such that it is affordable……
Often times many individuals simply buy an amount which ‘seems about right’ but it makes sense to apply some basic maths;
- Step 1 – work out the (monthly) loss of income to your family if you died (don’t worry about adding up all your monthly bills in detail) – come to a reasonable conclusion – let’s say this might be € 5,000 per month.
- Step 2 – remember the State pays out valuable benefits to a surviving spouse / partner – these include a widow’s and dependant’s pensions. Where there are 2 young children this benefit is currently circa € 1,100 per month. So you can offset this amount against the income above
- Step 3 – remember the mortgage repayments are likely to ‘stop’ in the event of the death of a spouse / partner as the ‘life cover’ to the bank will take care of the remaining loan balance. So these repayments are no longer part of the monthly bill so the net income required reduces even further
- Monthly Income to be replaced € 5,000
- State Disability Benefits (€ 1,100)
- Mortgage Repayments (€ 1,400)
- Net Monthly Income to be replaced € 2,500 per month / € 30,000 p.a.
- Step 4 – having calculated the NET monthly income, simply multiply this amount by 12 and then multiply by the number of years the cover should be in place
For how long should Life Assurance Cover be in place?
The Life Cover should be in place for the ‘critical’ years (typically for a period which covers the time until they reach teenage years).
Many clients take out the cover for a term of 20 + years and this is perfectly acceptable but the ‘real impact’ of the death of spouse / partner is that 15 year window so in many instances a 15 year term is wholly sufficient…
…..but only if the plan gives you the option to renew the cover (or a lesser amount) at the end of the term – without then being required to demonstrate evidence of continued good health.
In the example above a capital payment of € 485,000 would be sufficient such that if you stripped € 30,000 from the tax free lump sum each year (increasing this amount by 3% p.a.) and you continue to invest the remainder of the lump sum (earning 2% p.a. on the remaining lump sum) the cover would be sufficient to meet 15 years of income requirements.
Click here – Life Chart – A Sample
How much might it cost me?
A lot less than you might think….
The cost of the life assurance plan would be as little as € 37.41 per month ^^
This type of approach ensures you have sufficient cover at a very realistic cost…
^^ Male, 38 next birthday, non-smoker, Level Life Cover of € 485,000 for a term of 15 years, option to renew cover at any time, premiums fixed forfull plan term, no encashment payment on cancellation of plan
Is there more?
…..Aviva Life are currently offering – at no additional cost – access to their BEST DOCTORS benefit
Here is how it works…..