Wednesday, 7 May 2014

Guaranteeing an Inheritance for your Beneficiaries.

Guaranteeing an Inheritance for your Beneficiaries.

(Disclaimer – Please note that this article doesn't constitute advice as individual circumstances will dictate suitability. All information and suitability should be discussed in detail with a suitably qualified adviser, accountant or solicitor)

Using a Whole of Life policy to provide an inheritance may not always be the first benefit considered when using this type of product. More often, Whole of Life policies are used for Funeral Planning or indeed Estate Planning (to potentially cover an Inheritance Tax liability).

However, using a Whole of Life policy to provide a GUARANTEED Inheritance may work really well for certain people.

My business buys in a lot of Life Insurance leads as part of our business plan and when getting to speak to client’s it can lead to numerous different conversations based around Life Cover, products and costs. One recent conversation I had was as follows:

Male client aged 62 made an enquiry regarding £100,000 of Life Assurance. After speaking to the gentleman about his concerns and the basis for his initial enquiry, it became apparent that he wanted to leave a sizeable lump sum for his family, namely two sons, on death.

After discussing the advantages and disadvantages of Term assurance, my client decided that type of policy wasn't suitable as the end of the policy term may likely finish before making a claim.

Therefore, my client wanted something that would guarantee to pay on death. So, I quoted a Whole of Life policy to provide a guaranteed sum assured of £100,000.

The premiums offered by various Insurance Companies ranged from £142 – £201 per month, payable for the rest of my client’s lifetime. My client’s first reaction was to say it wasn't value and he would be better to pay the money into a savings account (and/or investment).

Then, we looked a little more closely at the figures. Taking an annual premium of £175 per month (£2,100 annually) Life expectancy for male aged 62 is expected to be approximately 78 Calculating annual premium X life expectancy to age 78 = £33,600 in premiums payable. Calculating annual premium X life expectancy to age 94 = £67,200 in premiums payable. Now lets look at the returns should £175 per month be invested into a low risk Cash Isa @2.5% annual interest. (Obviously, greater returns could be achieved but may contain an element of RISK.)

16 years returns £ 41,261 (to age 78)
32 years returns £102,781 (to age 94)

As we can see, if the client paid into a low risk, tax efficient contract up to average life expectancy the return would be £41,261.

However, If my client was to die, the Whole of Life contract would pay £100,000 (a difference of £58,739)

On death your ISA investment would make up part of your estate and depending on your total assets may be taxable. As part of a whole of life policy written into trust for your beneficiaries, the sum assured would fall outside of your estate and therefore not be part of your potentially taxable assets and any sum assured would not be taxable in receipt to your nominated beneficiaries.

This analogy can also be considered if you have existing savings. In effect, you could release regular payments from existing savings to fund a Whole of Life policy. In fact, if your estate is considerable and potentially subject to Inheritance Tax, then your payments could be classed as gifted and not subject to taxation under the 7 year rule.

Hopefully, some of the benefits of Whole of Life policies outside of their general use have been highlighted and we would genuinely love to discuss further if of interest.

Comments welcome

Drop in protection cover leaves mortgage holders exposed | Financial Reporter

Drop in protection cover leaves mortgage holders exposed | Financial Reporter

Scottish Widows warns that an increasing number of mortgage holders are financially exposed as levels of protection cover drop.
Around 14.5 million UK adults over 18 have a mortgage but only 50% hold life cover. Those who don’t could be at risk of losing their home if the unforeseen were to happen.

This is set against a backdrop where nearly a fifth (19%) of mortgage holders said they had no idea how they would cover their household bills if they or their partner were unable to work due to incapacity, serious illness, an accident or death. A further 48% said their savings would last just a couple of months at the most.

Mortgage holders are also at risk of over-estimating the support they would receive from other sources, including their employer and the state. Sixty-four percent believe their employer will pay them either a full salary or a full salary followed by a partial salary if they are off work for a long term.  The reality is that people may be eligible for Statutory Sick Pay at £87.55 for up to 28 weeks.  Employees may also be entitled to Occupational Sick Pay, a payment made over the level of SSP, dependent on a company’s policy and often their length of service.
This situation is compounded by reported household expenditure for this group increasing by over £65 a month in the last year. Mortgage holders now spend an average of £1,393 each month on household costs, compared to £1,326 in 2013.  Financial resilience could further be impacted if interest rates rise, potentially pushing an increasing number of mortgage holders into severe difficulty, including a high number of first-time buyers who have never experienced a rise in rates.

Protection cover amongst mortgage holders has dropped since last year with only 50% currently owning life insurance, compared to 54% in 2013.  Furthermore, just 17% of mortgage holders have critical illness cover, down from 20% in 2013 and 7% hold income protection, a drop of 3% since last year, according to the latest Protection Report from Scottish Widows.

Richard Jones,Director, Annuities, Bancassurance and Protection, Scottish Widows said: 

“Protecting a home is about protecting a way of life that encompasses family, community and often a business. With this in mind, the impact of losing a home could be even greater than we initially realise. Whilst affordability cannot be ignored, people with mortgages do need to review and develop a more robust plan to ensure they are protected should the unforeseen happen. It’s all about making sure you have the right cover at the right time of your life, giving people the peace of mind that their families will be able to keep their home and be financially covered come what may."

Tuesday, 3 December 2013

Introducer Agreement with Which? Legal Services

We have been trying to think of how to offer our client’s value added services.
We have also been considering ways in which we can differentiate our business when compared to similar Financial Service companies.
Which? is  the UK’s most recognisable Consumer Champion’s brand and we are pleased to have an agreement with Which? to offer our client’s discount codes for those considering making a Will.

The Principles of Treating Customers Fairly Re: Personal Finance

Specifically Treating Customers Fairly (TCF) aims to:

Help customers fully understand the features, benefits, risks and costs of the financial products they buy minimise the sale of unsuitable products by encouraging best practice before, during and after a sale.

Desired consumer outcomes of TCF The FCA has outlined six core consumer outcomes that it wishes to see as a result of the TCF initiative. These are: 

Outcome 1 - Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture

Outcome 2 - Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly

Outcome 3 - Consumers are provided with clear information and kept appropriately informed before, during and after the point of sale

Outcome 4 - Where consumers receive advice, the advice is suitable and takes account of their circumstances

Outcome 5 - Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect

Outcome 6 - Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint

Wednesday, 9 October 2013

Differences between LTA and DTA (Discuss)

Questions I often get asked is what are the similarities between level term insurance and decreasing term insurance and what are the differences.
Life Assurance
They are both types of life assurance and they both payout a lump-sum if you were to die during the term of the policy. The main difference between the two is that level term insurance remains (as the title suggest) level so if you are insured for a £100,000 pounds for 20 years the policy would payout £100,000 pounds should you die at any time during the 20 years. 
The decreasing term insurance (as the name decreasing might suggest) decreases over time so if you started off with £100,000 pounds over 20 years with full cover on day 1, by the end of the term the policy that would be reduced down to zero.
The main usage for decreasing term insurance is to protect a payment of a repayment mortgage (capital and Interest). That is the type of mortgage where you pay some capital and some interest each month so by the end of the term you owe nothing. So your life insurance needs to mirror that repayment schedule of your mortgage loan.
One positive about decreasing term insurance is the premiums are lower because as you get older and your chance of dying gets higher the level of cover reduces so the premium is lower.
So, to recap, Level Term Assurance remains the same sum assured throughout the policy term and is generally used to provide life cover to pay a lump sum to your beneficiaries should you die (family insurance cover). Decreasing Term Assurance is generally used to cover a loan such as a mortgage. Level is more expensive than decreasing.

Whole Life Plans for Funeral and Estate Planning

When most people think of traditional life insurance they think of term life insurance.
Term life insurance policy span a set number of years during which the insured party pays a fixed premium based on his or her age, current state of health and pay out an amount of the policy.
The alternative to this type of term life insurance is whole of life insurance (WOL). A whole of life insurance policy covers the insured party from the day of the policy begins until his or her death paying out a guaranteed sum of money to the policy holders beneficiaries. As such this type of WOL policy is often used for Funeral Plans and Estate Planning.
Whole of Life plans funerals and estate planning
A portion of whole of life insurance premiums are invested by the insurer with any earnings intended to help offset the rise and costs of insuring the policy holder. Here at Belgravia Capital Insurance we recognize that making an informed life insurance decision requires having all of the available information and the ins and outs of whole of life insurance can seem complicated.
By breaking whole of life cover down to its basic components we hope to help you decide if whole of life is the right life insurance for you. We specialize in helping our clients find the right life insurance.
When you are ready to begin your search for the whole of life insurance that is right for you we are ready to help you find the perfect policy for your lifestyle and your family. In connection with our advised Whole of Life plans our clients can also enjoy a fantastic discount, from one of our partners,to produce a Last Will and Testament.For further info