• Wednesday 01 April 2020

 

Should I cancel my life assurance policies to save money?

 

Right now, people are looking at ways to cut spending, especially with concerns over current and future income. We know the banks are dealing with thousands of requests for mortgage/loan payment deferrals, while energy, telecoms and other service providers are facing calls to allow the same.

Here, our Protection Specialist, Colin Davis, answers some of the most common questions we’ve received about Life, Illness & Income Protection policies.

IMPORTANT NOTE: Health Insurance is not covered in this article as it is a complex area and requires its own dedicated piece, which we will follow up with soon.

 

So I can cancel all my Direct Debits to the Life Assurance Companies, right?

•  Hold on there a second! I know you are looking to reduce your spending but before we go any further we need to look at all the different types of insurance you might be paying for and work out the options for each. 

 

Really? Ok, what types are there?

• There’s loads of different types of protection/insurance/assurance products out there. Each is a policy that pays out in the event of something happening to you.

 

Such As?

The most common types of policies are:

 

• Mortgage Protection: This clears the mortgage with your bank in the event that one of the mortgage-holders dies.

 

• Personal/Family Cover: A policy that pays a once-off lump sum or monthly income in the event of the policy holder(s) dying. It is usually put in place to ensure a spouse or children don’t suffer financially.

 

• Death In Service (DIS): This is the same as personal cover, but usually given as a benefit in your employment and calculated as a multiple (2/4/8 times) of your annual salary.

 

• Income Protection: Pays a % of your salary if you are unable to work due to Long Term illness. If you have this through work it can be called Permanent Health Insurance (PHI) even though it’s not actually a health insurance policy (I know!).

 

• Specified Illness Cover: If you get diagnosed with a specified illness (and that term is key) you get a lump sum payment. 

 

Well, which ones should I cancel?

• The most important message I can communicate is DO NOT CANCEL ANY POLICY.
• By that I mean, if you send in an instruction with ‘cancellation’ in it, or you simply stop your direct debits without any communication, the policy will ‘Lapse’ (i.e. finish) with no scope to start it up again.

 

What Should I do instead of cancelling?

• If you are sure you cannot pay then communicate directly to the company or, preferably, through your advisor/broker, and request a ‘Premium/Payment Holiday’

 

Payment Holiday? Sounds good.

• Be very careful here and check the terms and conditions around this benefit (or ask your broker to do it for you)
• Usually there is a 3 month allowable period for premium holidays
• In this time you are still covered so if something happens to you the policy will pay out according to the terms and conditions.
• After this you have to pay back the missed premiums though – i.e. 3 months worth in one go.
• If you go over the 3 months then the insurance company will look for a ‘Health Declaration’ and if you’ve had any condition or illness since the policy started (not just in the holiday period) then you could be looking at a price hike.

 

So what should I prioritise (i.e. keep) if I do need to cancel or take a premium holiday?

 

• There is no absolute answer here and everything is dependent on circumstances. In the most general way though:

 

PRIORITY	PRODUCT	NOTE
1.	Mortgage Protection	You will have to keep this in place – your bank will insist on it. A Holiday is possible, but be careful that you have enough to pay back the 3 months build up
2.	DIS & PHI	The two company benefits you might have, which you probably don’t pay for anyway. Make sure and check with your employer whether you are covered at this time, especially if you are made ‘temporarily redundant’. With companies under financial pressure too, there may be a temptation to cancel this benefit and you need to know.
3.	Family Cover	This is a judgement call but if you have a family, especially young children, or are in any way health compromised, you need to be very pragmatic here. It’s an emotive topic but talk about it with your partner or advisor
4.	Personal Income Protection	If you are not working or on significantly reduced income then the policy you have may not be appropriate right now, especially because the insurance company will often look at your recent income to determine your benefit. This might be one to take a holiday on.
5.	Specified Illness Cover	The only reason I put this at the bottom is that it can often be the most expensive cover someone has. Also, depending on circumstances, it may have been sold inappropriately. Review it with an impartial advisor and then decide.

 

 

What about the policies I keep. I know it’s unlikely but will my life assurance policies pay out if I get Covid-19?

 

• They might. This is what you need to know about claims for Covid-19.

 

Type Of Cover	Covid-19 Impact	Payment
Life Assurance	Death	Life Assurance pays out on death and usually has very few exclusions.  Therefore, if someone dies from Covid-19, the policy should pay.
Specified Illness Cover	Serious Illness	Covid-19 is not a ‘Specified’ illness under the terms of any policy we know in Ireland, so you will not get payment for getting it alone. However if it leads to another serious illness that is covered under the policy then payment should follow. This is complex and will require expertise so speak to the seller or, better, a broker/advisor
Income Protection / PHI	Loss of Earnings	Three things: All of these policies have a ‘deferral period’, which can range from 8 – 52 weeks. You have to be so sick that you cant work for that period before you get paid. This applies now as ever. Income Protection only pays if you are ‘unable to work due to illness’. It is not a policy that pays in case of unemployment. Self Employed people should be careful that their income levels before a claim aren’t so reduced that the cover is impacted. Again this needs advice.

 

All of this has actually made me realise that I need one or more of these policies. Can I apply as normal?

• Yes. Applications are taking longer as the life companies are a bit stretched for resources, but you should still be able to take out cover.
• If you are in self-isolation or have been diagnosed with Corvid-19 then you will have to wait until you’re given the all clear. Obviously if there were any additional medical implications they will be taken into account.

 

That’s a lot of information but I’m still confused. What should I do?!!

 

• Speak with a professional.
• We’ve taken a huge number of calls in recent weeks from concerned clients and members of the public asking all of the above and more.
• I know that ourselves and our colleagues in the industry are more than happy to do our bit at this time and Curran Futures, among others, having been giving our time free-of-charge to help people through this.

 

If you are worried about whether you can or should continue to pay for insurance of this kind, Contact us today on 091 861001 or email team@curranfutures.ie and our team of experts will be on hand to answer your questions in an honest and straightforward manner.

 

• Insight