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FAQ’s

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Frequently Asked Questions

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Business insurance

1. What is Keyman Insurance?

Key man insurance is life insurance intended to cover the loss of profits or to pay back a loan linked to an individual working in a company.
For example, if Joe who is the employee of the company and has built up fabulous business contacts over the years, there is a large amount of the profits are directly linked to Joe’s ability to bring in the business. If Joe died then the business would suffer a loss. This is a classic example of where the owners of the business would insure Joe for an amount of money to cover a loss of profits if Joe died.

Another example of where Key man insurance would be used is when there is a loan to the company and the company would be severely affected if a key person died. Key man insurance could be taken out then to cover that individual to ensure that the loan is paid off.

The type of life insurance is Normal Term Assurance, importantly there are some rigorous terms and conditions that must be met to satisfy all the tax conditions.

2. What is Partnership Insurance?

Partnership insurance is whereby partners who have a value built up in the business want to ensure that their surviving spouse get the full value of the partnership without causing financial strain to the surviving business partner. An example of this would be Mary and Joan own a hairdressing salon and they have it valued at approximately €400,000. They would each ensure themselves for €200,000, so that if one of them died the surviving partner would then become the owner of the business and the deceased partner’s family would receive €200,000.

3. How do I value my business for Partnership Insurance.

The value of your business is what somebody would pay for it on an open market. Therefore it is quite hard to do that unless you try and sell it. There have been many books written about valuing a business. Your accountant will be aware of some of the methods that are used.

Financial planning

1. What is financial planning?

A financial plan will take a holistic approach to your goals and objectives. Financial planners analyse your current situation and provide meaningful strategies to help you achieve your stated goals and live your life to the maximum. A clear plan of action is agreed upon. The plan is stress tested with a series of “what ifs” to ensure that nearly all eventualities are covered. The plan should be monitored on a yearly basis to ensure that you stay on track, as life has a habit of getting in the way.

The properly constructed financial plan will provide you with a financial roadmap for the rest of your life. It will provide clarity and confidence for you and your family to achieve your stated goals.

2. What are the steps involved?

Financial plan will invariably consist of six steps.

Step 1 Setting goals with the client
Getting to know your goals and financial inspirations. Establishing what is important to you and more importantly, why it is important. Establishing what your lifestyle and financial goals are, and of course prioritising those goals.

Step 2 Discovery process
Gathering the hard data to clearly establish where you are now. To look and review all your existing financial arrangements that is: debts, credit cards, loans investments, life and pension policies, mortgages, income, and expenditure. This gives a clear starting position.

Step 3 Analysing information
All the data is analysed, then a lot of back-office work to match your goals which are financial and taxation strategies. At this stage another meeting is organised to discuss your initial thoughts with you and create a series of “what ifs” to stress them.

Step 4 Develop a financial plan
Construct a financial plan and present the plan to you for final approval. Every aspect of the plan is discussed again until you have clarity and the actions required to achieve that goal.

Step 5 Implementing the strategies in the plan.
Every plan must have a call to action to make it effective. A list of agreed action points is created. This provides direction and simple steps to follow. Sometimes this may necessitate extra paperwork.

Step 6 Monitoring and review
Once the heavy lifting is done, the journey to financial freedom has started. However, as we are all aware, life is in the habit of throwing a few curve balls at us. Therefore, it is important to review your plan and adjust it on a regular basis. This is to ensure that your goals remain on track.

3. What type of financial objectives should I have?

Obviously financial objectives change from person to person. No two people have exactly the same financial situation. However, I have found that these are the more common ones.

1. Retire early. This is by far the most common financial objectives that people have. They certainly do not want to work until pension age of age 68.

2. Pay off the mortgage early. This is probably a stepping stone to retiring early, as it reduces the need for income.

3. Pay off personal debt which is far more expensive than mortgage debt.

4. Payoff credit card debt which is ridiculously expensive and a complete waste of money

5. Educate the kids at the third level, if they wish to attend 3rd level. To put in place a savings plan that will accommodate €11,000 per year for each child that wishes to attend college.

6. Buy a holiday home in Spain/Portugal.

7. To be financially independent of my children in my old age.

As you can see the above goals are varied. This is only to be expected as people’s goals, dreams and aspirations are all different. The above is only a sample of what I have experienced over the last number of years. The really important thing though, is that the couple is sitting down and actively discussing the finances. This is really powerful as it may be the first time that they’ve actually discussed money. Money appears to be a taboo subject for many couples.

Financial planning is the perfect solution to provide clarity and confidence for the future.

Income Protection

What is Income Protection?

Income Protection is a policy that will protect your income in the event you are unable to work at your normal occupation. This is an exceptionally broad qualifying criteria. For this reason it makes it the hardest type of insurance to get. However in my opinion it is the most valuable as it is protecting the thing that guarantees your lifestyle.

Income Protection is also known as Permanent Health Insurance.
There are a few things you must decide upon before taking out Income Protection.

The first one being after how many weeks payment is deferred before Income Protection to starts to pay out. The options are 4 weeks, 8 weeks, 13 weeks, 26 weeks and 52 weeks. Obviously, the longer you defer the initial payment the cheaper it is.

The second thing you must decide upon is to what age you wish to have the Income Protection paid out to. The options are anywhere from 55 to 70. Obviously the earlier that you stop the payments the cheaper it will be, as the company will not be paying out for a longer period.

Third thing that affects the premium is your occupation. The riskier the occupation, the more you have to pay for it. Therefore the pen pusher whose only occupational hazard is a paper cut will pay a lot less then somebody who is involved in machinery such as a plumber.

Fourth thing that affects the premiums are the normal health underwriting questions. These include smoking status, age, family history and general health questions.

Interestingly Income Protection is tax deductible at your current rate of tax, which makes the premiums very attractive and affordable. The maximum that you can insure yourself for is 75% of your earnings. You have to deduct the social welfare payment of approximately €10,000 as well if you are entitled to it. For example a lady earning €60,000 the maximum that she could insure herself would be €60,000 at 75% which is equal to €45,000. Then deduct the social welfare benefit of €10,000 and she can insure herself for €35,000.

When does the Income Protection pay out?

The Income Protection pays out after a successful claim has been made. This invariably means a letter from your doctor or a hospital consultant stating that you are unable to follow your own occupation is required. Then once the deferred period has passed the income will start to pay out to you. It is important to note that you cannot be better off on “sick payment” than if you were working.

Which is better Income Protection or Serious Illness Survival Cover?

To answer this question properly you must first look at the definitions for Serious Illness Survival Cover and Income Protection.

Serious Illness Survival Cover will pay out if you have a specified illness of a specified severity. It covers a lot of illnesses but not all. Therefore you could have an illness that is not covered under the Serious Illness Survival policy.

Income Protection policy will pay out if you cannot follow your own occupation. There are no specified illnesses or disabilities in this qualifying criteria. Therefore it is considered to be a better type of policy then Serious Illness Survival. Another major factor for choosing Income Protection over Serious Illness Survival is that the Income Protection premiums are tax deductible.

Pensions

What are the different types of pensions?

There are four different types of pensions. These are dependent upon your tax status.

The first one is a Personal Pension plan. This is most commonly used by a sole trader such as a farmer, Accountant, Doctor and Plumber. Interestingly it can also be used by somebody who is PAYE but does not have an Occupational Pension at their place of employment.

The second one is Personal Retirement Savings Account, commonly abbreviated to PRSA. This is a no-frills type of Personal Pension. It has a set charging structure as laid down by the government. It was designed to be an off-the-shelf product to increase the take-up of pensions in the community.

The third one is an Executive Pension plan, Company Pensions plan or an Occupational Pension plan. These are all the same things. Basically somebody else such as your company is actually paying into your pension scheme.

The fourth one is a Retirement Bond, also known as a Buyout bond or Bob for short. This happens when you have worked in a company’s scheme and then you leave the company and you wish to take your pension with you. The pension leaves the stewardship of the trustees from the company and then it becomes a Personal Pension for you. The main characteristic of this type of pension is that you have full control over where the funds are invested and the type of risk levels that you wish to take. It is interesting to note that whilst you have control over this, the pension in the main has to follow the rules of the scheme where it came from.

What is a PRSA?

The PRSA stands for Personal Retirement Savings Account, and was a type of pension that was introduced by the government around the year 2000. It is designed as a no-frills Personal Pension account. It was meant to be what they call an “off-the-shelf” product that would reduce the reliance on advice needed to buy a pension product.

There are two types of PRSA. The first one is called a standard PRSA which has a standard charging structure of a 1% annual management charge and a 95% allocation.

The second type is called a non-standard PRSA and the allocation and the charging structure on this one can vary, as it has access to a greater variety of funds from each individual life insurance company.
The PRSA follows the rules of a Personal Pension plan and also the contribution levels.

What is the Retirement Bond?

If you have worked in an Occupational Pension scheme and you have built up a fund in your pension, then you can transfer this to your new Company Pensions or to a Retirement Bond. The Retirement Bond is a Single Premium Pension that is now managed by you. You have effectively removed it from the trusteeship of the company that you were in, and now you are making the investment decisions. It is interesting to note though that it must still follow the basic guidelines of the pension scheme where it came from.

What is a Personal Pension?

A Personal Pension is whereby you are contributing from your own personal funds into a pension scheme. Typical users of Personal Pensions are sole traders, these would usually be people such as Doctors, Accountants, Plumbers, Farmers, Carpenters and shop-owners that operate as a sole trader and not a limited company. The amount that they can contribute is based on their age and earnings. For the purposes of calculating the amount, the max allowable earnings are €115,000.

20 – 29 15% of net relevant earnings
30 – 39 20% of net relevant earnings
40 – 49 25% of net relevant earnings
50 – 54 30% of net relevant earnings
50 – 59 35% of net relevant earnings
60+ 40% of net relevant earnings

As you can see the amount you can contribute increases greatly as you get older. However, the €115,000 is quite limiting to the larger earners.

When can I retire my pension?

For Personal Pensions the earliest you can retire your pension is from the age of 60 onwards to 75. However it is important to note that even though it may say 65 in your pension policy that you can if you wish retire earlier or later than that date.

The Company Pensions are slightly different areas. You can take your Company Pensions from the age of 50, if you have severed all links with your company. This is called early Retirement Pension. Under normal circumstances you can retire the pension any time between the ages of 60 and 70. As in all cases it is very important to discuss your retirement options with a financial planner to get the best advice.

How much can a company director contribute to a pension plan?

This is dependent upon the amount of salary that the director has, the value of existing pensions, and the length of service that the director has in the company which he wishes to make a pension contribution from. The easiest way to do this is to do what they call a max funding test, and this lets you know how much you can contribute as a lump sum or on an ongoing basis to your chosen retirement date. Generally speaking it is a lot more than a sole trader can contribute to their pension plan.

How do pensions work?

The pension has a very unique tax status. Anything that happens in the framework of a pension scheme is completely exempt from all forms of tax. This effectively means that your money goes into your pension scheme tax-free, grows in the pension scheme tax-free and that you get a percentage of the pension back to you when you retire tax-free as well.

An example that I use is putting property into your pension scheme. You bought two semi-detached houses in 2006 €100,000 each. There are exactly the same in every way and are attached to each other. The first one you bought through money that you had earned through your salary and had paid tax on. If we assume you’re on the higher rate of tax with all the usual taxes such as USC and PRSI then this €100,000 that you paid for the first property, you’d have had to earn €200,000 to put €100,000 in your back pocket. The other property you bought for your pension fund annually had earned €100,000 to buy this property.

First property had €12,000 per annum as rent and you must pay income tax on it.
The second property also has €12,000 per annum in rent however as this is in your pension fund this is earned tax-free.

You sell the first property 10 years later and it makes €200,000. Therefore there is €100,000 gain that you must pay capital gains tax on of 33%.
You also sell the second property, this too was valued at €200,000 however as it is exempt from all forms of tax, you do not pay the capital gains tax on this particular property.

You deposit the money that you get from the sale of both properties into a deposit account. The first property, any interest that it makes is taxable, it has to pay dirt tax. Second property, as it is in the framework of the pension scheme you do not pay your tax on it.

How much is the state pension?

The state pension is currently just under €13,000 per annum for a full contributory pension. Importantly Leo Varadkar in 2018 linked the state pension to the average industrial wage. This is very important as it guarantees that the pension will be relevant and meaningful as the years progress.

However it would be prudent to acknowledge the fact that the state pension is in trouble and this is why the state pension age recently increased from 66 to 68. Indeed there are talks already that the state pension age will be 70 before long.

Serious Illness Survival Cover

When does a Serious Illness Survival Cover pay out?

After a diagnosis of a specified serious illness of a specified severity the company will pay out after 14 days. The important part here is the specified severity of a specified illness. Each illness has qualifying criteria that must be reached before a claim is paid. This causes the most confusion in relation to this product.

It should also be noted that there are two types of payment, full and partial.

How much should I insure myself with Serious Illness Survival Cover?

It is important to firstly look at the reason why Serious Illness is brought in the first place. The reason is to give you money so that you do not have to rush back to work. It gives you plenty of time to recuperate fully and make adjustments to your house, your car and your life. It is for this reason that Serious Illness Survival should be measured in income replacement terms. By this I mean that you buy five years wages or three years wages or two years wages, whichever you can possibly afford to purchase.

What illnesses are covered?

I attach a link to a full list of all the illnesses that are covered, both fully and partially from the different life insurance companies that offer Serious Illness Survival Cover.

Why is Serious Illness Survival Cover so expensive?

It’s a very easy question to answer, it’s because so many people are making successful claims. Because of the advancement of medical science people are now living longer after a serious illness, this results in more successful claims. The offshoot of this is that the price has now increasing.

Why is Serious Illness Survival Cover so expensive?

It’s a very easy question to answer, it’s because so many people are making successful claims. Because of the advancement of medical science people are now living longer after a serious illness, this results in more successful claims. The offshoot of this is that the price has now increasing.

Life assurance

Why do I need Life Assurance?

Life Assurance is for the people you leave behind when you die. If you have people who are financially dependent on you, then you need life Assurance cover.

What is Life Assurance?

Life assurance is a contract between you and a life assurance company. The company promises to pay out if you die. Once you have told them all the material facts when you originally took out the policy. You and the other hand promise to pay all the monthly premiums into that policy to keep it in force. There is normally a term of years associated with the policy.

What types of Life Assurance are there?

There are a number of different life assurance policies. Such as Decreasing Term Assurance, Level Term Assurance and Whole of Life policies. There has been a trend in the last number of years to mix and match these types of policies to come up with hybrid policies. These include Income Assurance and Whole of Life Continuation Assurance.

What type of policy is best suited for a family?

This invariably depends upon the job that you wish to life assurance to do. If you wanted to protect a capital and interest loan, then decreasing term assurance is the ideal product for this job. If you wanted to protect the family then the most popular one would be the level term assurance. The combination of decreasing term assurance and level term assurance are what most families would have as their children are growing.

What is the best policy to have for Inheritance Tax planning?

The best policy to have is a section 72 Whole of Life joint life last death policy. This type of policy provides life insurance cover payable only on the death of the last person involved. The reason why you have a paying out on the last death of the couple is that that is when the assets are passed to somebody else and inheritance tax occurs. The sole purpose of section 72 is to pay the inheritance tax. If there is money left over after the inheritance tax has been paid then the balance is actually considered to be inheritance as well and taxed accordingly.

Where do I buy life assurance?

Life assurance can be bought from many intermediaries in Ireland. These include tied agents of many different companies, banks and brokers. However, it is important to note that a tied agent is exactly that, tied to one particular company. The banks are also tied agents they are tied to one specific company. This means that they can only offer you a product from one specific company and you have no choice from other companies. Brokers on the other hand, will provide you with research showing you a range of different products and one that is best suited to your circumstances.

What is Mortgage Protection?

Mortgage protection is an umbrella term used to describe any life insurance product that is used to protect a mortgage. Therefore, you can use all the different types of life assurance policies once they satisfy the criteria. The criteria being that the life insurance policy is the same or longer than the term of the loan. That the life assurance is the same are larger than the amount of the loan. The characteristic of a capital and interest loan is that it is large at the outset and then decreases down to zero at the end of the term of the loan.

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