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Category : Protection

What does your future life look like?

We hope that you have experienced the quiet evolution of our role in recent years. Going back in time, the role of the financial adviser was to help clients to identify gaps that they had in their portfolio of financial products, to find the best products to fill those gaps and to then put these products in place for clients. While this is still an important strand of what we do, our role has evolved in recent years into a much broader and more valuable service.

Now our role is one of being your financial guide, of helping you to identify the life that you want to live, and then helping you actually achieve this life. Today our most powerful conversations don’t start with a long discussion about your money – your assets and debts, your income and expenditure. Instead the conversation centres around you, yourself. Your hopes and dreams, what you want to achieve in your life and what living life on your terms looks like.  When you are clear about your desired future life, only then does the conversation turn to being able to afford that life and how we can help you make the life you want a reality.

While developing a financial plan that will guide you to achieve your desired life requires all of our expertise, experience and financial planning tools, the process of achieving it is relatively straightforward. We take you through four main phases of work when working with you on our full lifestyle financial planning service.

 

Discovery

This is the most important of all of the stages. This is where we help you to identify and articulate your lifetime goals and ambitions, where we help you to visualise your future life in your own terms – the type of life that you will lead, the possessions that you will own, the positive impact you will have on the lives of others, what you will do and achieve in your life.

Until you know the answer to these questions, what are you financially planning for? Just building a pot of money with no idea of what it will allow you to do?

During this phase of work, we revert to the important old adage of “having two ears and one mouth for a reason”. Our role in this is to carefully ask you the right questions that will enable you to visualise your future life. And then we listen intently. It is not “airy fairy”, instead it is the most important conversation that we will have together, as we get to understand your hopes and dreams.

 

Planning

The second stage is where we apply our expertise and tools to develop the roadmap that will get you from where you are today to achieving the life that you want to live. As part of this, we may use some clever technology that enables us to map out your future cashflows for the rest of your life – how much money you will have every year and whether you will have enough to live the life that you want. Of course we are making a range of assumptions around this, but these assumptions will be fine-tuned during the lifetime of your plan to increase the accuracy of the forecasts.

We will show you whether you are on track to lead the life you’ve visualised, and if not what you need to do to get on track. We can demonstrate the impact of unforeseen events and how to plan for them, the impact of your goals changing and of course the actions you need to take, or financial habits and products you need to put in place to achieve the plan.

 

Implementation

This is the phase of work we are often most commonly associated with. It’s also the most straightforward of all of the phases. This is where we put the required financial products in place that will play a role in helping you to achieve your goals in life.

 

Your ongoing guidance

Regular contact and scheduled meetings sit at the heart of lifestyle financial planning. The ongoing interactions turn the plan into a real journey towards you achieving your lifetime ambitions. These regular meetings are the opportunity to review and restate your goals, consider again the assumptions used, review the progress and performance of the actions and products that were implemented, and to keep you on track in terms of your behaviours with your money and investments.

To help you stay on track, we know that we need to be with you at every turn, helping you to navigate your way towards your dreams. We value our appointment as your financial guide and will be in your corner helping you to make the best decisions possible throughout your life.

 

Our job is done only when you are living the life that you want to lead.

Do you know what your future life looks like and whether you will be able to lead it or not?

Is Income Protection really necessary?

Income Protection is sometimes described as the glue in a financial portfolio. The most devastating impact on your financial situation is likely to be caused by a loss of your income, and the inability to replace it.

Unfortunately, people lose their jobs from time to time. However inevitably what tends to happen is that these people pick up new roles elsewhere or take a new path in their careers. As a result, their income may drop for a period of time, but will usually pick up again before too long. These people are in the fortunate position of being able to work.

Being unable to work because of illness or injury is a whole other matter. Little or no costs are moved from your life, in fact new costs may emerge such as medical expenses, care fees etc. On the income side, there are social protection benefits available, but in reality these deliver no more than basic subsistence payments. So there is often a lot less money coming in, with sometimes more going out…

Income protection protects your most important asset in the event of illness or injury – your income. And yet at the same time, it still doesn’t find its way into everybody’s financial portfolio.

 

Your most important asset?

We have just reviewed some very insightful research carried out by Friends First among Irish consumers that shines a light on this issue, with some very interesting findings. First of all, when asked to rank their financial assets in order of importance, the findings were,

  1. Our home (67%)
  2. Our savings (57%)
  3. Our pensions (48%)
  4. Our income (43%)

While the findings might not be surprising in that we all have an emotional attachment to our homes, without their income, these people will lose all of the other assets (maybe bar their pension). Your income is the enabler of all of the other assets, and therefore is the most critical one to maintain.

 

How long could you cope?

The research then went on to ask how long employees could cope without their income where they are reliant on social protection, using their savings and maybe selling some assets. The findings here were startling when compared to the reality of income protection claimants.

  • 44% of people said they could cope for 3-6 months only.
  • 30% said they could cope for between 6 months and a year
  • Less than 8% said they could sustain themselves financially for 2 years or more.

However the average duration of an income protection claim is 6.5 years! And that’s an average, many last longer than that. So while having the foresight to maintain a nest egg to see you through a year or two of income loss is extremely laudable and wise, on its own it just might not be enough.

 

How much of your income do you need to protect?

This is a really important question. While income protection still enjoys the benefit of tax relief at your marginal (highest) rate, it’s another household expense that none of us enjoy. After all, you’re paying for a benefit that you hope you never collect! It is really important that we spend time together looking at your specific situation, your expenses and how they might be impacted by a loss of income. You want to have enough cover to meet your needs in the event of a loss of income, without paying too much along the way. You need to consider any sick pay schemes that you might have access to through your employer, as these might impact the cover levels and cost of a policy to meet your needs.

When asked by the researchers, two thirds of respondents felt that they would require a replacement income of between 50% and 75% of their current income levels. Just over a quarter felt that they would need to protect between 25% and 50% of their income, while 7% felt they would need a replacement income of less than a quarter of their current income. It may be that this last group are approaching retirement and/or possibly their incomes are significantly in excess of their expenditure. Otherwise they may be a little unrealistic about the level of income they would need to replace!

How much replacement income would you need?

 

We all have a range of financial challenges; making our money go further today, investing wisely, saving for retirement and protecting our main assets. In addressing this final one, never underestimate the value of your income – it is the one single asset that you really can’t live without.

Are you a cohabiting couple? Get protection advice!

According to the Census carried out in 2011, 12% of families in Ireland are now made up of cohabiting couples.  This cohort of our population still faces some unique challenges when it comes to personal finance and inheritance. In this article, we’re going to identify some of the significant issues to be managed, and set out why it is so important for cohabiting couples to get expert financial advice. Not doing so could result in some very expensive tax liabilities down the road!

 

The Background

In 2010 the Civil Partnership and Certain Rights and Obligations of Cohabitants Act was enacted. This Act conferred rights similar to those of a married couple on registered civil partners and qualified cohabitants. The rights extended though are different for both.

Registered civil partners now have automatic rights to each other’s estates on death. This entitlement was not extended to cohabiting couples, who can apply for a provision out of the deceased’s estate but have to pay inheritance tax on it.

As a result, it is critically important that cohabiting couples get expert financial advice in order to avoid inheritance tax bills in the future.

 

The family home

As cohabiting couples are not treated for tax purposes in the same way as married or civil partnership couples, the death of one partner could result in a sizeable tax bill for the surviving partner. First of all, cohabiting couples should make themselves aware of the qualification conditions for Family Home Relief, which allows a complete exemption from Inheritance Tax and Capital Gains Tax if those conditions are met. This relief is available to any two individuals, which of course includes cohabiting couples. Meeting these conditions could result in a significant tax saving on the death of a partner.

 

Mortgage Protection

Mortgage Protection will be put in place as a condition of gaining mortgage approval. This policy repays the loan to the bank in the event of death of a borrower. Should the conditions of Family Home Relief not be met, there is a potential tax liability for the survivor on the death of their cohabiting partner as their Inheritance Tax Threshold (the amount on which you don’t pay tax) is only €16,250.

In the worst case scenario, if one partner alone bought the house and subsequently died, their surviving partner’s tax liability could be based on the full value of the house (less the threshold amount) – a very sizeable bill.

Arranging mortgage protection on a joint life basis might give rise to a potential tax liability, as could the inheritance of the property itself.  Solutions we would consider could include,

  • Increasing the amount of life cover to cover the inheritance tax liability
  • Taking out a “life of another” policy
  • Taking out a section 72 policy to specifically pay the tax

We suggest strongly that you seek our advice to find the very best solution for you.

 

Personal & Family Protection

As cohabitants have no automatic rights to their deceased’s partners assets, unless they have a will in place the proceeds of a life assurance contract could even end up in the hands of the deceased’s next of kin. This can be avoided by the policy being structured correctly. Again we will examine your specific circumstances and advise you on the optimal route to ensure that on your death, your assets end up with your intended beneficiary and in the most tax efficient way possible.  There are very important considerations around the type of policy to be used and who pays the premium, in order to ensure the most tax efficient solution.

 

Small gift exemption

In Ireland there is a small-gift exemption, which allows anyone to gift up to €3,000 in any tax year to anyone else with no attaching tax liability. This can be done every year and is an effective way for cohabiting couples to transfer some wealth to each other and for parents to transfer wealth to their children – €6,000 is allowed each year from 2 parents to each child. This can really add up over time!

Cohabiting couples can use this exemption very effectively where one partner is financially dependant on the other. In order to avoid a liability for inheritance tax, it is crucially important that the person who will benefit from the policy actually pays the premium from his or her own means. If they don’t have means and their partner pays the policy, they are liable for inheritance tax on the death of their partner. The small gift exemption can be used to transfer wealth to the partner without means, who can then use this to pay the premium. This will enable the policy owner to pay the premium where he/she doesn’t earn an income.

 

The goal of this article is to give cohabiting couples a flavour of some of the important issues they need to consider in relation to their personal finances. We will be delighted to talk you through your specific situation, and help you ensure you avoid any nasty surprises at a later stage.

How well is your company protected?

One of the more important business activities of any company owner or partnership is the whole area of risk management. Yes of course you have the day-to-day challenges of bringing your products to market, selling, building your brand and your presence, and meeting and exceeding the expectations of your customers through your product delivery.

Sitting behind these are the important tasks of running the financial side of your business, getting the best people in place and running your business efficiently. And then there’s risk management, in case anything goes wrong.

So what do you think about when you think of something “going wrong”? Is it a fire in a warehouse, an accident involving a company vehicle, maybe somebody tripping and falling in one of your retail outlets? Is it someone suing you for poor performance in your business activities? These are all areas where businesses build contingency plans or put insurance in place.

But one area that sometimes slips under the radar is the potential impact to your business or partnership if something happens to your most important assets. Your people. We want to make you aware of the different strategies that you can put in place to safeguard your company against the death or inability to work of one of your key people.

 

Partnership Insurance

People who are engaged in a professional partnership, such as solicitors, accountants, medical professionals and others who work together outside of a company structure need to consider what would happen in the event of the death of one of the partners in the firm. Because on death, the deceased partner’s share of the firm immediately becomes part of their estate, which could be called upon as a debt by the deceased partner’s survivors. This potentially could create enormous issues for the remaining partner(s) who would need to immediately raise finance (if they can) in order to buy out the deceased partner’s share. Of course the alternative is that a deceased partner’s family member could instead become involved in the firm instead, this being a real potential recipe for disaster!

BDO Simpson Xavier released the sobering statistic that 72% of businesses cease trading within 5 years of the death of business’s founder, often because the remaining partners simply don’t have the financial firepower to compensate the deceased partner’s estate and keep the business going forwards.

Thankfully partners can protect themselves against this risk. Each partner can take out partnership insurance on the lives of their partner(s). Should one partner die, the remaining partner(s) now have immediate access to the necessary capital to buy out their deceased partner’s share of the firm. The deceased’s family are looked after and the firm can continue to grow.

 

Co-Director Protection

This is similar to partnership insurance but in a company context where there are directors in the business who are shareholders of the business. When there is Co-Director Insurance in place, in the event of the death of a director, the remaining directors (or the company itself under a Corporate Co-Director’s Insurance policy) can buy out the shareholding of the deceased director.

This prevents a deceased director’s family having to become involved in the business, where they may have no desire or experience to do so. This insurance also enables the company to control it’s own destiny, should such an unfortunate and unforeseen event occur. The deceased’s family are fairly compensated and the remaining directors retain control of the ownership and direction of the business – a best-case scenario for all concerned.

 

Key Person Insurance

It’s not at all unusual to have one or two key people in a business, who are not shareholders in the business. They may simply be exceptional employees with unique talents or expertise that the business relies upon heavily. To lose such a person would be like cutting off a limb, and may even threaten the very future of the business, as their input is so key.

Businesses can protect themselves against the loss through death or illness of such a person through a Key Person Insurance policy. These policies enable the business to survive such a loss, by providing a cash lump sum for the business. This may give the business time to hire required replacements or to pay down some debt as they adapt to life after their deceased colleague. This insurance might prevent a business imploding after the loss of a key person.

 

Yes it is important to protect your physical assets, your premises, your vehicles and your stock and to ensure you can adequately manage any other potential liabilities. But your people are the very heartbeat of your business.  Don’t let losing them lead to the death of your business.

What Income Protection is and what it is not

As financial advisers helping our clients to build a better financial future for themselves, we are talking to clients every day about a whole range of issues in relation to their personal finances. With some clients, we are helping them with their retirement planning and to build diversified and risk adjusted investment portfolios. We also help our clients to protect themselves against a range of possible catastrophic events, from ill-health to death.

However we are sometimes concerned when we hear people talking about income protection, as they often don’t do it justice or sometimes don’t appear to fully understand it. Some think that they have income protection in place, while in fact having some other form of lower value cover. In these situations, we always sit them down and give them the A to Z on income protection, ensuring a full understanding of this really important protection product.

But to help you in the meantime, here goes on a whistle-stop description of what income protection is and what it isn’t.

Income protection is…

  • It is protection against being unable to work due to illness or accident. So it relates to your physical capacity to carry out your work. When taking out an income protection policy, you choose a deferred period. This is effectively a waiting period of anywhere from 4 to 52 weeks before your claim becomes payable. The longer the deferred period, the cheaper the premium.
  • Income protection is a replacement income. The insurance company effectively steps into the shoes of your employer / self employment and pays you your regular income instead, at your income protection benefit level. You will submit your tax credit certificate to the insurance company and they will pay you as a PAYE worker.
  • Income protection is a benefit that continues to be paid until your retirement date. So it ensures that your income is maintained right up until the end of your working life. Of course if you recover in the meantime and return to work, the benefit ceases, as your employer / self employment then replaces the insurance company again as the payer of your regular income.
  • Income protection is a fully tax relievable expense, so you can reduce your tax bill at your marginal rate by paying for income protection.


Income protection is not

  • It is not a lump sum payment if you fall ill. There is no once-off windfall payment, instead it is a regular (and often far more valuable) monthly payment until you retire. If it’s the protection of a lump sum you want in the event of illness, talk to us about Specified Illness Cover.
  • Income protection is not restricted to a list of specific illnesses. Claims are paid on your inability to work due to illness or accident, whatever the cause might be.
  • Income protection is not protection against redundancy. Claims are only payable when you are unable to work due to illness or accident.
  • Income protection is not an income for life, it is payable until you get better or until your retirement age.  However with most income protection policies, you can also choose to protect your pension contributions as well, thereby ensuring that your post-retirement planning and income stays on track.

Income protection is often known as the glue within a financial portfolio. Without income, everything is at risk – your mortgage, your pension, your other financial commitments. Now might just be the time to talk to us about securing your future income, and your peace of mind.

Life Cover – “Surely that’s only for older people?”

Experience in the life assurance industry shows that most life assurance policies are taken out by people in their 30’s, 40’s and to a lesser extent in their 50’s. There is a very low uptake of life assurance by people in their 20’s who think; “I don’t need it now, I’ll buy it when I need it.”

We believe that it’s time to look again at all the possible things that can go wrong with this line of logic, and ask you to consider these points for yourself (if you’re fortunate enough to still be in your 20’s!) or indeed to advise your children to think about.

You are fit and healthy now

Typically when you are in your 20’s, you’re in the prime of your life!
You’re fit and healthy, and when it comes to life assurance, you have the choice of benefits, all of which can be purchased at ordinary rates, without loadings or exclusions.

Being overweight is a very common reason for additional loadings being applied to life assurance premiums. When you are young, your Body Mass Index (BMI) is less likely to incur additional loadings than in the future as some of us spread out a little bit!

You also must remember that your ongoing good health is not guaranteed. Many illnesses don’t raise their ugly head until later in life. Once you are diagnosed with an illness, it may affect your access to life assurance in the future, either altogether or possibly at normal premium rates.

So taking out life assurance while you are young gives you the best chance of getting cover at rates that are not loaded because of any health issues that you might have.

Your relatives are (more likely to be) fit and healthy

In a similar theme to the above point, the health of your immediate family is an important factor in determining your premium rates. When you are younger, your parents and siblings are of course also younger and as a result, you are less likely to suffer a premium loading based on family history at this stage.

Common Family History issues that can complicate an application for cover include cancers, heart disease, a stroke, haemochromatosis, multiple sclerosis and a range of other serious conditions.

You have not yet have taken up a hazardous activity.

There are a range of activities that can impact your access to and price of life cover if you carry them out, or are planning to carry them out at the time you take out the cover. These would include the likes of;

  • Working in a High Risk Area (eg: Libya, Chad, Nigeria, Colombia etc.)
  • Scuba Diving
  • Private Aviation

These types of activities can result in premium loadings, exclusion of cover if your death is related to these activities, or in some cases complete declinature of cover. It is quite possible that in your 20’s, you don’t carry out or plan to carry out any of these activities so you will be able to get cover at the most competitive rates.

You have not yet undertaken advanced diagnostic screening

As we all get a bit older, we begin to recognise our own mortality and most people start to pay more attention to their health. Many people as a result go for health checks. This is a great idea as they can pick up any potential issues that you have and enable you to deal with them as early as possible. However advanced screenings can also pick up incidental findings that can affect future life assurance applications.

So while undergoing the likes of ECG’s, MRI’s or Echocardiograms can be crucial to your ongoing health, you need to recognise that they may result in findings that can impact your access to life assurance. At the end of the day, you are less likely to be getting these diagnostic tests done in your 20’s.

Protect yourself against policy changes

Events happen in the life assurance industry that can impact the price of cover too! For example, the 1990’s HIV scare resulted in an approx. 15% increase in premiums overnight. So getting cover in place early can protect you against such sudden premium increases.

And of course cover is cheaper

I purposely left this point until last as the earlier points are equally important! But yes, cover is cheaper at these earlier ages, so getting the cover in place early secures these lower premiums.

“But I don’t need it now”

We hope that the above points have given you some food for thought as to why it might be a good idea to get cover in place now. Also, we’re here to find the most appropriate cover for you. So for example, if you are in your 20’s, we might consider cover with Life Events Options that allow you increase your cover (within limits) without further medical evidence at that time when buying a new home, when getting married or having a baby.

At the end of the day, that’s what we’re here for – to find you the right cover, at the right time, to suit your specific circumstances and needs.

Income Protection – The Glue that Holds Your Financial Portfolio Together

Income Protection is that still relatively rare product in many people’s financial portfolio. Why is this? Particularly when it covers far and away your biggest asset, your income.

The reason I believe that income protection remains ignored by many people is because they don’t have to take out this cover. Unlike car insurance, which is required to stay on the road, and house insurance and mortgage protection, which are probably conditions of your mortgage, income protection is a discretionary purchase. So it has to compete for your attention with your day to day spending, the spending on your social life, your saving for your holidays and all your other discretionary spending. It’s true paying for income protection is not the most enjoyable use of your money, however it’s a really important use of your hard earned cash. Without your income, everything goes; holidays, your lifestyle, your mortgage repayments, the lot. It’s your income that keeps all of these going for you.

Income protection provides cover against the loss of your income due to illness or accident. That is why we consider it the glue of a financial portfolio. It protects your income, which if you become unable to work may pretty much disappear. Income protection then steps in, replaces your income and enables you to maintain your financial objectives, continue your saving, your pension planning, and the protection for your family, as well as your lifestyle spending.

While obviously the best place to start looking for income protection is by talking to your independent financial adviser (which is covered in detail elsewhere in this newsletter), here are a few features you might not be aware of in relation to income protection.

Tax Relief

Did you know that the premiums paid for income protection policies qualify for tax relief at your marginal rate of tax? Unlike health insurance and other tax breaks that only get relief at the lower 20% rate, income protection (like pensions) attracts relief at your highest rate. This can reduce the actual cost by over 40%.
Align it with any existing entitlements

Income protection policies come in all shapes and sizes so this is where your independent financial adviser can really help you. One of the first places to start is to examine any existing entitlements you may have in the event of being unable to work due to illness or accident. Your employer may provide sick-pay for some time and / or you may have entitlement to some social welfare benefits. It’s really important to take these into account when identifying the right income protection cover for you.

The payment of income protection benefit usually begins after a deferred period (waiting period), usually anything from 8 weeks to a year from the date you are first out of work. The longer the waiting period, the cheaper the cover is. So it makes sense to take account of any sick pay that you might get in the short-term.
It’s all about claims

At the end of the day, income protection like all insurance is a simple concept. Lots of people pay in relatively small amounts of money (premiums), from which small numbers of unfortunate people claim relatively large amounts of money (claims) when an unforeseen event occurs.

To ensure you are getting the right insurance for your own circumstances, you need to examine in detail every aspect of the policy that you are going to take out. What does the provider mean by “unable to work”? What is their claims payment record, do they actually pay out? What added services are available – some providers will assist claimants in their rehabilitation and indeed will assist them in retraining etc. if this will help them get back to work, even on a part-time basis. Indeed some will continue to pay you a partial benefit if you manage to get back to work part-time.

The huge benefit of income protection is that claims can be paid right up to your retirement date. This is what makes it such a valuable benefit. There are claims that are currently being paid in Ireland that have been in force for literally decades.

And about premiums too…

Are the premiums that you pay guaranteed or might they increase over the years? While guaranteed premiums might look a bit more expensive at the outset, you get certainty that they will never change. It’s a bit like taking a fixed rate mortgage rather than a variable rate.

At the end of the day, the critical point is recognising how important it is to protect your income as this keeps all your spending possible. After that, you need to make sure that you get the right policy for you. And that is where we come in, your trusted independent financial adviser.

The Financial Lives of our Clients

We spend our days helping clients to plan their financial futures. What we see is that people face similar challenges depending on their stage of life. At the same time of course, each and every one of us has a unique set of circumstances, has our own specific financial objectives and needs bespoke advice to help us reach our goals.

You see, financial planning is not an exact science. It depends completely on those unique circumstances; your current and potential earnings, your family situation and your assets and liabilities to name but a few factors. And it also depends on what it is you are trying to achieve. For you, is it all about comfort in retirement or are you seeking to maximise your wealth in the shorter term? Is the security of your family your primary concern?

While we clearly acknowledge that everyone is unique, we thought it might be useful to give you a sense of the type of issues that many of our clients see as the big financial challenges at various stages in their lives, and the typical solutions they seek out from us.

 

 

The carefree years: Age 20 – 35

Ah the carefree years! At least that’s how they start out for this age group before they start placing one eye on the future. For most of our clients in their late teens and early twenties, there are really just a small number of areas that they come to us looking for help with. The first area of focus is savings, often with one eye on building a deposit for that eventual house purchase.

As our clients move through their twenties and into their thirties, mortgages tend to dominate as we help people get loan approval for that first home. As many of our clients also get married at this time and start their families, they tend to focus on getting protection (health insurance, life assurance, income protection etc.) in place to safeguard their families financially. The very forward-thinking of our clients also turn their attention to building education funds for their children and also their retirement funding. These smart people realise that the earlier they start their funding, the more they are likely to have available at retirement!

 

 

The growth years: Age 35 – 50

Hopefully now the mortgage is not hurting quite as much and there is a little spare cash available for other purposes. At this stage in our clients’ lives, we see a real commitment to pension funding – making sure that they can maximise the tax breaks available and finding the best pension vehicle for them. We also find at this stage that our clients become a little more aware of their infallibility (remember how indestructible we all felt when younger?), and want to ensure that they have the right protection in place to protect themselves and/or their families against the financial consequences of ill-health or death.

For those who are in the fortunate position of having some spare money, they also seek help in building an investment portfolio, particularly in the current low deposit rate environment.

 

 

The consolidation years: Age 50 – 65

As the state pension age moves out (eventually to 68) over the next few decades, this consolidation period is going to expand. We see our clients at this stage furiously continuing to build up their pension funds. However at this stage many are looking to take some of the risk out of their portfolios as they recognise the damage that could be done by a large drop in the value of their funds as they approach retirement.

Another area that we get asked a lot about among this group is in relation to the whole area of wealth transfer. Our clients have seen the reduction in Capital Gains Tax thresholds and the increase in the CGT rate, and seek out ways to avoid leaving their families with big tax bills. These tax bills can often result in families being forced to sell an inherited family home, just to pay the tax bill. So we help them plan the transfer of wealth in a tax efficient way.

 

 

The Drawdown years – age 65+

And now the spending years – hopefully! This is where hopefully you get to enjoy the fruits of your labour and your careful financial planning over the years. Usually our clients no longer have a salary coming in at this stage, but of course we hope that we’ve been able to help them accumulate a good pension for themselves!  Our work with clients who are in the latter stages of their lives tends to be around helping them manage their spending wisely. The risk these clients want to avoid is running out of money, so we help them to manage their assets carefully.

What we also see among this group is the amount of time they spend thinking about others and how important their legacy is to them. They are thinking a lot about their families in particular and how they can leave a lasting legacy (financial and otherwise) with them. Again we help them with their wealth transfer strategy to ensure their financial legacy is valuable and accessible for their families.

 

We hope this article gives you a sense of the types of challenges our clients face. If you would like to discuss your own particular situation with us, we would of course be delighted to hear from you.

How well are you looking after your Business Partner?

The health and welfare of your business partner is a really important factor in your financial planning. After all, they have probably been working alongside you since you came up with the idea for your business, and also have shared the highs and lows as your business survived those difficult early years and has hopefully grown as time went on. Your partner has toiled alongside you, shared the stresses and hopefully you’ve built a business you’re both proud of. It wouldn’t have been the same, or indeed may not have happened without them.

 

Now I want to tell you a story about a situation we came across recently. Two business partners (let’s call them Tom and Gerry) built a great manufacturing business in the Southwest of the country. They built a great business that supported them nicely and indeed also a small team of dedicated staff. Unfortunately Gerry developed a very serious medical condition and passed away after a very short period of time. Tom was of course devastated; the 2 men had been a great team working together, very reliant on one another and sharing everything down the middle. And that included having an equal share of the value of the business. They had never felt the need to formalise the situation, they were very trusted friends to each as well as partners.

 

After Gerry’s death, his son who had just finished college decided that he would (with his mother’s blessing) take his father’s place in the business, minding what was an important financial asset to them. Tom was not 100% happy with this as he now had an equal business partner again, but not the one he had built the business with. The 2 partners tried hard to make it work, however they just had very different visions for the business. In the end, after real slippage in the business and quite a bit of bad feeling creeping in between Tom and Gerry’s family, Tom managed to secure a sizeable bank loan and bought out Gerry’s family.

 

Tom now owns all of the (smaller business), under pressure to pay off the loan and without his friend alongside him. And all of the angst and financial pain could have been avoided… Unfortunately, such situations are repeated frequently each year around the country.

 

Business Protection

There is a range of business protection solutions available to help businesses survive the death or indeed the serious illness of someone that would result in a financial loss for a business. These solutions provide a number of benefits for businesses;

  • They offer real peace of mind benefits to the directors or partners, as they remove the financial worries associated with the death or serious illness of a colleague.
  • They remove the need for businesses or surviving partners to borrow money to buy out their partner’s share of the business.
  • They remove the need for a surviving family member to take the deceased’s place in the business.

 

In the situation mentioned earlier, if Tom and Gerry had co-director’s insurance to the value of their shares in the business on each other’s lives, all the stress would have been avoided. When Gerry died, Tom’s insurance policy would have paid out, and he would have been in a position to immediately buy out Gerry’s share of the business for a fair price and keep control of it – which could have been agreed as a right for each of them when effecting the policies.

 

There are a number of different types of business protection solutions available to suit the different types of business structures.

 

Co-director’s insurance

This would have been the answer to Tom & Gerry’s issue! Each director insures themselves against the death of their partner, enabling them to buy out the partner’s shares on death and/or serious illness. As an alternative, the insurance can be effected by the company itself.

 

Partnership insurance

Similar to the above, a partnership takes out insurance, protecting itself against the death or serious illness of an individual partner, enabling them to compensate the deceased partner’s estate for their share of the partnership.

 

Key person insurance

This helps a business to minimise the impact of the death or serious illness of a key employee. The insurance can be used to quickly attract a replacement employee or indeed to pay off loans of the company that may have been guaranteed by the deceased.

 

So the good news is that Tom & Gerry’s situation can be avoided. The key to finding the right solution is getting the right advice. And that’s where we come in! If protecting the future of your business is a concern to you, please give us a call and we can walk you through your options.

Photo courtesy of glasseyes view

Now that’s Innovation!

The market for financial protection products has seen some great innovations over the last few years, and all to the benefit of the consumer! First of all, the cost of protection products in general has fallen, due mainly to advances in medical science helping to reduce claims and also the product providers competing keenly with each other on price.

In order to compete with each other today, the battleground for product providers has moved on from simply reducing prices to adding exciting and valuable features and benefits for customers. Long gone are the days of consumers simply deciding whether it is life cover, serious illness cover or income protection that they need, they now rightly demand access to the exciting additional benefits on offer. Today’s market presents a challenging (but interesting!) role for financial advisers to stay ahead of these innovations, to ensure that we continue to offer the very best cover to our clients.

So, as we put in place new cover for people and review existing cover for clients looking to save money and access new benefits, we’ve identified a few innovations in the Irish market that we think you might like to be aware of.

 

Underwriting has got more client friendly!

Long gone are the days of the perceived “default setting” being the requirement of clients to travel to a doctor for a medical examination. In many cases these medical examinations have been replaced with alternative methods of gaining the required information, but in a far more friendlier way for applicants.

Today if an underwriter requires more information than that provided in an application form or by the client’s own doctor, they may seek either of the following;

A nurse medical: This is where a nurse travels to your home or office and carries out the medical examination at a time and place that suits you. As a result, you don’t have to waste time travelling for a medical and enduring the inevitable wait in the doctor’s surgery.

Tele-underwriting: This is where the information is simply requested in a phone conversation with a medical professional. They ask all of the questions that you would have been asked in a doctor’s surgery, and of course still have the opportunity to ask follow-on questions where they need more information (this is hard for them to capture through a written form completed by you). Again it saves you the bother of having to attend a doctor’s surgery.

 

Best Doctors

One of the providers that we deal with now offers a really exciting service to their protection customers. You can now access Best Doctors, which is a global organisation bringing the world’s leading medical expertise to you and your family, offering a second opinion when you need it most. In the event of you suffering a serious medical condition, a Best Doctors medical specialist will help to verify your diagnosis and treatment options, and will conduct an in-depth review of your medical files.  The process can reduce potentially serious complications that can result from a misdiagnosis, and help you and your treating doctor determine the proper course of action.

Being diagnosed with a serious illness would be an emotionally overwhelming experience if it happened to you. You would have lots of questions and nagging doubts:

  • What will happen now?
  • Is the diagnosis correct?
  • Will the treatment be right?
  • How can I be sure?

Best Doctors will help to assuage these concerns. It’s also included as a benefit of the policy!

 

Income Protection Deferred Periods have got shorter and shorter

The deferred period on income protection policies is the amount of time from the date of accident or onset of illness, until the claim will begin to be paid. This traditionally was anything from 3 months to a full year. This frustrated some potential customers who reckoned they would be recovered and back at work before the claim would even begin!

We now see deferred periods as short as four weeks on offer. In fact, for professionals and other lower risk occupations, income protection cover can now be secured from the very first day of illness of accident – no deferred period at all! Now that is real innovation as a result of listening to the needs of customers!

 

Some great policy features

Some of the providers include some lesser-known but really valuable added benefits on their policies to make them stand apart. These include;

Rehabilitation support on income protection policies: For income protection claimants, recovery means a chance to return to work or to begin a new career. Some providers offer resources and assistance to help you get back into the workforce when you are ready.

Relapse benefits on income protection policies: There are policies available that will immediately restart paying your benefit if you have a relapse within six months of returning to work. There will be no deferred / waiting period in this case.

Partial benefits and career changes for income protection claimants: There are providers who clearly recognise the benefits both to themselves and to the claimant, of the claimants getting back to work. However the claimant may only be able to work reduced hours than before their illness or accident, or indeed may need to change careers to a less demanding job. Providers have financial and other supports available to claimants to help them achieve these ambitions.

Terminal illness benefits on life assurance policies: Many life assurance policies will pay out the full benefit immediately on diagnosis of a terminal illness, removing the financial stress at this very difficult time for a family.

 

These are just a sample of some of the great innovations available today. Unfortunately all of these innovations make your choices a bit more difficult. But that’s where we come in! It’s our role to stay abreast of these changes and to ensure that our clients have the very best benefits in place at the lowest cost. If you’d like to find out more about any of these innovations, please give us a call.