Insurance It s a Life or Death Situation

Transcription

1 Insurance It s a Life or Death Situation LIA Wexford March 2014 Ed Rafferty QFA Grad Dip CFP Protection Sales Manager

2 Agenda Common client goals Why Life Assurance is important to your client Identify the income gap Client considerations What term should we consider? Protecting our Business Clients 2

3 Common Client Goals Clear mortgage in the event of death Clear mortgage in the event of serious illness Provide for my family in the event of my death Lump Sum or Income on Death To be financially independent Provide for my family in the event of a accident/illness Income Protection or Specified Illness Benefit Fund for my retirement Pension Planning or Regular Savings Emergency Fund/Rainy Day Fund/College Fund 3

4 Identify the income gap If you could only ask your client 1 question what would it be? What % of your monthly income do you need to protect? 4

5 Gas Bills House insurance School Fees Car Tax Groceries Property Tax Phone Bills VISA Bill Mortgage XXXXXX INCOME Petrol Life policy Social Credit Union Pension Car Insurance Club Fees Child Care Medical/Dental 5

6 Client considerations Do my family rely on my income? What monthly outgoings will continue if I die prematurely? Could my family meet these ongoing bills? How much of my monthly income goes towards savings for my children s education? 6

7 Client considerations Highest when needed most Runs to zero

8 Factfind Impact of income ceasing Quantify the income that needs to be replaced. Capitalise to an equivalent lump sum -???? 8

9 Is the traditional lump sum still the way to go? Level Term Based on age of youngest dependent / term to retirement Multiple of salary Can build in indexing cover and premium 9

10 Equivalent Lump Sum Income drawdown 20 yrs 25 yrs 30 yrs 1k pm 184k 215k 242k 2k pm 368k 430k 485k 3k pm 552k 646k 727k 4k pm 735k 861k 969k 5k pm 919k 1.07m 1.2m Assumed investment return of 3.0% net of tax and charges 10

11 Factfind Impact of income ceasing Quantify the income that needs to be replaced. Capitalise to an equivalent lump sum Consider any existing benefits Make recommendation Discuss issues eg Affordability Implement agreed course of action (incl. reviews) 11

12 What term should we consider? Until the youngest child is 21, 23 or 25? The spouse is on their own after that? To NRA? Client plans to retire at NRA therefore the surviving spouse should be financial independent until then. Surviving spouse should continue to fund for retirement income savings or pension contribution Surviving spouse lives off pension fund/savings after NRA 12

13 Case Study * *( 2,500 each) 13

14 Case Study - Recommendations 1. 1k pm income benefit on each life for 30 years = 30 pm k lump sum on each life for 30 years 3. Combination of both 1k pm income benefit on each life for 30 years 50k lump sum on death ( 20k car loan + 30k,(1 year net salary) 14

15 Is the traditional lump sum still the way to go? 30 per month 34 year old couple, non-smokers, 30 year term Maxium Payout on Death Income on Death vs Lump Sum on Death 400, , , , , , ,000 50, Age Income on Death Lump Sum on Death 15

16 How Lump Sum On Death Compares How Long Does Cover Last Following Death Income on Death vs Lump Sum on Death 400, , , , , , ,000 50, Age Income on Death Death at 34 Death at 37 Death at 40 16

17 Another option - Rolling 10 year term Maximum Payout on Death Income on Death vs Convertible Lump Sum on Death 400, , , , , , ,000 50, Age Income on Death Convertible Lump Sum on Death 17

18 Protection Opportunity DC Employee Client age 45, salary 50k DIS = 2 * Salary = 100k Pension Contribution = 300 pm 18

19 DC Employee Client dies in service Client Dies after 5 years - Spouse will receive 100k lump sum - Value of contributions = 18k - Widows pension per month Client Dies after 10 years - Spouse will receive 100k lump sum - Value of contributions = 36k - Widows pension per month Solution LSOD equivalent to DIS with term to NRA PLUS With conversion option Income on Death benefit, k pm, with term to NRA 19

20 Why clients are considering an income benefit Client generates the answer what income do I need to protect? Easy to understand Reduces under-insurance risk early in the policy term Removes the worry when investing a lump sum 20

21 21 Business Clients

22 Protecting your business clients The failure of family businesses in most cases can be attributed to poor succession planning. The death or serious illness of a partner/shareholder can have serious repercussions for the future of a company 90% of enterprises in Ireland are family owned businesses, accounting for 50% of employment 72% of family owned business ceased trading within 5 years of the death of the founder of the business - 33% of family business survive to the 2nd generation - 15% make it to the 3rd - 4.5% to the 4 th 22

23 Protecting your business clients 70% of Irish business have not arranged any form of Partnership/Co Director Protection. Clients felt they didn t need Business Protection because all other asset values were increasing. Key employees are more key than ever before. 23

24 Risks which business owners should be aware of Odds of one business owner dying before age 65 Age Sole Two Three Trader Partners Partners 35 13% 23% 32% 40 12% 22% 32% 45 12% 21% 30% 50 11% 19% 28% 24

25 Risks which business owners should be aware of Odds of one business owner becoming seriously ill before age 65 Age Sole Two Three Trader Partners Partners 35 24% 43% 56% 40 23% 42% 55% 45 22% 39% 53% 50 20% 36% 49% 25

26 Risks on death of a key employee Interruption of business activity/reduction in profits. Personal guarantee on borrowings called in by lender? Lender may withdraw credit facility over concerns about viability of business. Loans made by KeyPerson, to company, are called in. Funds available?? 26

27 Protecting business cash-flow Motor Costs Insurance 27

28 How to minimise the risks. Increase Borrowings Keyperson Insurance Lump Sum is paid to company Borrowings repaid Business continues to trade 28

29 Keyperson cover Scenario to consider Business owner is key employee Business owner gets a mortgage on primary residence Business owner invests in business In the event of death their spouse wants to repay the mortgage Solution Keyperson insurance loan related 29

30 Business Owner s Death Scenario 1 On death, family stays in the business. What financial effect would death have on the business? What borrowings need to be repaid? Would key skills need to be replaced (at what cost)? 30

31 Business Owner s Death Scenario 2 On death, family sells the business. Would they get fair value for the business? Is there an agreement that business partners will buy shareholding? Would business partners have the funds to purchase deceased s shareholding? 31

32 How to minimise the risks. Increase Borrowings to fund buy-out Directors/Partners Insurance Lump Sum is paid to surviving business owners Funds used to purchase deceased s shareholding Deceased s family receive fair value for share holding Business continues to trade Borrowings continue to be repaid 32

33 Business Owners Considerations How would the business survive in the event of your premature death? Would your family be forced into a fire sale of other assets? What will happen to your share/your co business owners share of the business in the event of premature death? If your business partner dies do you have access to funds to purchase their shareholding? Would you pay an extra 0.25% to maintain your overdraft? Do you have Fire Insurance, Interruption Insurance, Liability Insurance? What about Business Insurance? 33

34 Self Employed - Considerations How long would you be paid for if you were out sick? How long would your savings cover your bills etc if you were out sick? How would your family survive if your income ceased? What state benefits are you entitled to? Would your business survive if you are out sick? How would you cope with an 80% cut in your income? 34

35 Self Employed - Solutions Personal Pension Term Assurance Personal Income Protection 35

36 Pension Risk Benefits What s in it for your client? Provides an income if they cannot work due to accident/illness Protects their income today Full tax relief Peace of mind 36

37 Pension Risk Benefits - What s in it for you? Example 1 Regular premium of 500 per month Commission (25% initial) = 900 Example 2 SP 15,000 Commission (5% initial) = 750 Alternatively Regular premium of 400 per month Commission (25% initial) = regular premium into Pension Risk Commission = 1,200 Alternatively 14,000 into SP Pension Commission = 700 1,000 AP into Pension Risk Commission = 1,000 Total Commission = 1,920 Total Commission = 1,700 37

38 Business Opportunities You have access to this data Group Risk Identify key employees Identify business owners Group Pensions Identify key employees Identify business owners General Insurance Clients 38

39 When should clients put cover in place? When we are young with dependents When its affordable When we are healthy Less when we are older. When its more expensive 39 39

40 Client Objection - I don t need it now, I ll buy it when I need it. Lets look at all the possible things that can go wrong with this line of logic. 40

41 A: You are fit and healthy now. You have the choice of benefits, all of which can be purchased at ordinary rates, without loadings or exclusions. Your BMI (weight) is less likely to be rateable (or at any rate is perhaps likely to be less now than in the future!) Your ongoing good health is not guaranteed 41

42 Big Bones / Former Rugby Player / Fit as a Butcher s Dog and other excuses 42

43 BMI (Body Mass Index) Point at which ratings likely to happen 43

44 Some Medical conditions that are more likely / as likely to occur at younger ages include.. Diabetes Systemic Lupus Erythmatosis (Lupus) Muliple Sclerosis Testicular Cancer Crohns Disease / Ulcerative Colitis Carcinoma in situ 44

45 Delta 45 All 3 got cancer Sharon Stone Sile Seoiga

46 B: Your relatives are (more likely to be) fit and healthy. Common Family History issues that can complicate an application for cover: Breast Cancer Bowel Cancer Heart Disease Stroke Motor Neurone Disease Multiple Sclerosis Parkinson s Disease Haemochromatosis Cardiomyopathy 46

47 C: You have not yet have taken up a hazardous activity. Scuba Diving Private Aviation Working in a High Risk Area (eg: Libya, Chad, Nigeria, Middle East) Equestrian Sports Hazardous Activity Etc These activities can result in Loadings, exclusions or declinatures. 47

48 D: You have not yet undertaken advanced diagnostic screenings Advanced screenings can pick up incidental findings that affect future applications. ECGs Heart Valve Abnormalities, Cardiomyopathy, PSG Prostate Cancer MRIs (head) White matter. 48

49 Last reason.. It s inexpensive!! (the traditional reason given to buy when young) There are many other reasons to promote the purchase of insurance to younger and healthier citizens. 49

50 Summary Personal Protection is the solution if something goes wrong Retirement Planning is the solution if everything goes right. Personal Protection + Retirement Planning = Financial Independence for your clients 50

51 Thank you for your time. Enjoy the rest of your day. 51

52 Important Information This presentation is intended for information purposes only and should not be relied upon without seeking appropriate advice. New Ireland Assurance believes any information contained in this presentation to be materially accurate but New Ireland Assurance does not warrant its accuracy and completeness. All opinions and estimates constitute best judgment as at 5th March 2013 and are subject to change without notice. The content of this presentation may not be reproduced, either in whole or in part, without the written consent of New Ireland Assurance. New Ireland Assurance Company plc is regulated by the Central Bank of Ireland. A member of Bank of Ireland Group. 52