Everybody Has a Plan Until They Get Punched in the Mouth
–-Mike Tyson, former world heavyweight boxing champion, star of “The Hangover”, philosopher, convicted felon, Broadway actor, stoner and strategist.
Today is the day we’re training to meet Mike Tyson in the ring.
If you ever did meet Tyson in the ring, there’s a good chance you’re not coming out alive.
So for this particular conversation Tyson is death, I’m your trainer and we’re here to ready you for the day Tyson comes a callin’.
Hopefully, it never happens.
So we have the chats, talk about income replacement, see how much cover you need to take care of your family. We calculate a figure, discuss the different insurers, settle on a premium. You’re happy, I’m happy. We put €1m cover in place, shake hands and hope for the best.
Two years later:
Aren’t you lucky you took out life insurance!
Sarah never really expected to receive one million euros.
Truth be told she feels slightly guilty about it – grief is weird.
But she is also anxious, a million quid is nice but your youngest child is only two.
How am I meant to make this money last for 23 years?
She knows the plan is to invest it and generate an income but money was your thing, not hers.
I haven’t a clue what to do.
Who do I trust? What if I invest it in shares and there’s another crash? What if they lose it all? Jesus, I don’t need this stress right now on top of anything else!
Is there another way?
Yes there is, it’s called Monthly Income Life Insurance, or ‘Family Income Benefit’ as our friends north of the border and across the Irish Sea call it.
What is monthly income life insurance?
Instead of having Sarah freak out about how she’s going to make one million quid last for 23 years, you can plan for a monthly tax free amount to hit her account.
So let’s say we calculate that should you get Tyson’ed, Sarah will be down €3000 per month.
Your youngest is 3 so we arrange a Monthly Income Life Insurance of €3000 per month for the next 22 years.
If you get knocked out, Sarah will receive €3k per month until his nibs is grown up.
You’ve done your duty and protected your family, hence the Family Income Benefit synonym.
Sarah gets a replacement income every month, stress-free though she is a bit sad not to have a million quid in the bank.
Whisper it but for just one teeny, tiny second she had notions
Can you add a lump sum to monthly income life insurance?
To get you over the hump and pay final expenses (funeral costs, legal costs etc) you can add some lump sum cover.
Can you add whole of life cover to monthly income life insurance?
This gives you free whole of life cover for the rest of your life once the term on the monthly income insurance ends.
Clear as mud?
Let’s look at the two scenarios, lump sum cover and monthly income cover: in real terms using two 35-year-olds, Steve and Sarah, non-smokers who want €1m for 25 years.
Lump-Sum Life Insurance of €1m over 25 years
They pay €132.76 every month for 25 years.
If either Steve or Sarah dies with the 25 years, Aviva pay out €1m
If they outlive the policy, Aviva pockets the premiums of €39,828
Monthly Income Life Insurance of €1m over 25 years
Let’s insure Sarah and Steve for €3333 per month with €20,000 whole of life continuation.
This will pay out €3333 every month for the remainder of the policy should either of them get Tyson’ed.
Sparko on day one of the policy, it will pay out €3333 every month for the 25 years.
Live until the 10th year of the policy, it will pay out €3333 x 12 x 15 = €599,940
As you can see it’s a reducing payout which is fine because the need for replacement income reduces as your kids get older and edge ever closer to financial independence (yey!)
They pay €116.15 every month for 25 years.
If either Steve or Sarah dies with the 25 years, New Ireland pays out €3333 per month for the remainder of the policy
If they outlive the policy…they can’t outlive the policy
Because the Whole of Life continuation option guarantees this policy will pay out €20,000 on each of them eventually. After 25 years, they get €20,000 whole of life cover FOR FREE for the rest of their lives.
The maximum they will pay into this policy is €34,845.
The minimum it will payout is €40,000.
I’ll let that settle in for a second.
Ah look, it’ll pay out more than you pay in.
For me, it’s a no brainer.
Monthly income benefit does exactly what it says on the tin – it protects your family to the max when your kids are young.
As the kids get older, they have fewer years of financial dependence (by 25 the feckers should be able to buy their own stuff!)
And, as time passes, your mortgage reduces, savings increase etc.
You don’t need a million in life cover when the kids are 25.
And there’s the added bonus of the whole of life continuation so you know you’re getting something back for the money you pay in!
In 25 years, 60-year-old Steve will be balder and 60-year-old Sarah will have more wrinkles. But, they’ll both be very proud of their 35-year-old selves for taking out this policy. Senior Sarah and Senior Steve will have free life cover. Their friends will still be paying hundreds per month for their cover.
Is there a catch – how can I get more than I pay in?
Remember, the insurer will invest your premiums every month.
Don’t worry, they’ll be able to generate enough from your premiums to make the payout. It might seem like you’re making money but rest assured, they are making more. The swines!
Monthly income life insurance is a form of decreasing/reducing life cover so if there is a claim the insurer only has to pay out a small amount every month compared to the large lump sum it would payout on a term life or mortgage protection policy.
This makes it less costly for the insurer. Less cost means lower premiums.
If you die on the first or the last day of a lump sum life insurance policy, the insurer is on the hook for one million immediately. With a monthly income policy, the risk to the insurer reduces as time passes but your premiums remain the same
Which insurers offer monthly income life insurance?
Only two insurers offer monthly income benefit – New Ireland and Zurich Life.
Which insurer is best for monthly income life insurance?
I’d go for New Ireland because you get the really useful whole of life continuation option- well it’s not really useful to you, because you’ll be dead, sorry.
But your funeral director will be happy!
Wow, funeral gags, this sounds amazing, tell me about it again.
OK then, it’s called Whole of Life Continuation benefit, I know the name doesn’t do it justice, it’s much cooler than it sounds.
You see, usually, if you outlive a life insurance policy, you get nowt, apart from the ability to walk and talk and breathe and be alive but you don’t get any money. The insurer keeps it. People hate this.
Seriously, the number of times people complain “but what happens if I don’t die, do I not get anything”. You may scoff but deep down you’re thinking the same thing.
If you add the whole of life continuation, there will be a payout when you die. Moneyback – chi ching.
So instead of lining the pockets of the insurer, you manage to stick your hand in their trouser pocket and grab a few quid before you sail off to the other side.
Can I add serious illness cover to monthly payout life insurance?
What’s the best life insurance for a single parent?
If you’re a single parent, monthly income benefit is a great way to provide for your children if you die or get a critical illness. This policy would provide the guardian of your child with the money they need to bring up your little one should the worst happen.
You can write the insurance policy in trust with the names of your children and the guardian as the beneficiaries.
Remember you can add critical illness to the policy (or take out separate income protection) and relax knowing you will have a replacement income to take care of you and your children should you become unable to work.
We recommend cover until your youngest is 25.
What’s the best life insurance for renters?
If you’re renting with your partner, monthly income life insurance is ideal.
You can insure each other for either the full amount or to keep the costs down, half of your monthly rent.
If the worst happens, your partner will be able to make the rental payments and stay in your home.
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