If you’ve got a death in service benefit through your employer, you may be thinking you do not need life insurance as well.
The level of cover set under your death in service benefit is determined by your employer and so you may want to consider whether this amount would be enough to support your loved ones should anything happen to you. Would the lump sum provided by your employer’s scheme be enough to cover debts and maintain your family’s lifestyle?
What if you left your current employment, to change jobs or retire? You no longer have that death in service benefit in place once you leave your job. While you could take out life insurance after leaving a job, it is important remember that premiums rise with age.
When getting a mortgage, it is a requirement that you have life cover in place to cover this loan and you will not have the option so assign your death in service benefit to your mortgage as circumstances can change and the term of your death in service is not guaranteed and the amount of your benefit may not cover the amount of your loan.
Therefore, it is important to take out additional life assurance to have consistent cover in place regardless of the changes that occur in your career. It is also beneficial to have this cover in place early as you can decide the level of cover that is sufficient, you can avail of lower premiums, and it can be assigned to a mortgage if required.
You can buy life insurance anytime and keep it whether you’re working or not.
One in eight couples now are cohabiting and not married. What many do not realise, is that they don’t have the same rights as married couples or civil partnerships, which can result in some devastating financial shocks down the road… Thankfully some of these can be at least partially mitigated, but they require careful planning in advance.
When the Civil Partnership and Certain Rights and Obligations of Cohabitants Act was enacted in 2010, it conferred rights like those of a married couple on registered civil partners and qualified cohabitants. However, the rights extended 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.
Here are a few areas that cohabiting couples should make themselves aware of.
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. Cohabiting couples need to understand the qualifying conditions for Family Home Relief, which can allow a complete exemption from Inheritance Tax and Capital Gains Tax if certain conditions are met. Meeting these conditions could result in a significant tax saving for the survivor in a cohabiting relationship on the death of their partner.
Cohabitants have no automatic rights to their deceased’s partners assets. This can result in a tax burden or even assets such as the proceeds from a life assurance policy not ending up in the hands of the people you want them to. To counteract this, once a will is in place, it is very important that life assurance policies are set up correctly to ensure your assets end up with your intended beneficiary in the most tax efficient way possible. Each individual situation must be evaluated and then the type of policy to be used and also who pays the premium should be considered, in order to ensure the most tax efficient solution.
Mortgage Protection Policy
A mortgage protection policy needs to be arranged very carefully by cohabiting couples when taking out a loan to buy their home. Simply arranging this on a joint life basis might give rise to a potential tax liability, as could the inheritance of the property itself. Unfortunately, the Inheritance tax threshold for cohabiting couples falls into the lowest tier (Group C) of only €16,250, usually resulting in a significant tax bill. Solutions we would consider include,
• A “life of another” policy
• Having sufficient life cover to also cover the inheritance tax liability
• A section 72 policy to specifically pay the inheritance tax liability.
There are other ways that the financial challenges faced by cohabiting couples can be mitigated, such as using the small gifts exemption to transfer wealth while both parties are alive. However the key ingredient is expert advice. If you are living in a cohabiting relationship, give us a call and we will review your specific situation and advise you accordingly.
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