Question about Money – 07/02/10
Posted by Jill Kerby on February 07 2010 @ 21:01
MMcH writes from North Dublin: I know you have written extensively about the importance of maintaining life insurance even in difficult financial times and I fully agree with this advice. I would however, like to ask your opinion on the following: my husband and myself (both now 50) pay approx €350 per calendar month on a 20 year mortgage of €500K. My husband was "weighted" as he had pre-existing illnesses. We now find this payment punitive and while we both have life assurance cover associated with our jobs, it was pointed out that this was only in place as long as we both were in these particular positions. Is there any way we can reduce the premium without going though the stress of hawking ourselves around to new brokers? Can we reduce our cover as the outstanding amount on the mortgage has been reduced?
* * *
I asked financial advisor John Geraghty of www.labrokers.ie for his opinion about your case. Without knowing more about the type of loan you have and the medical reason for the loading of the premiums, he was unable to determine whether your policy is ‘good’ value or not. Nevertheless there are ways to try and reduce the cost he says though it depends on the cooperation of both the lender and insurer. First, you could, as you suggest yourself, ask to switch to a policy that reduces the cover in line with the depreciating balance of capital you owe. Not all insurers are in a position to do this as it depends on the terms of the underwriting of the policy, he says. Another option is to seek cheaper cover from another provider, “but given that your readers are probably a couple of years older now and the health condition they refer to may still exist, they may not be able to secure a lower quote.” If your husband’s health is better, however, the loading penalty might be lifted and this savings may cancel out any higher age-related premium, he says. Next, since you are now both 50, you can ask your mortgage lender if they would be willing to waive the requirement for the life cover. But, says Geraghty, only expect them to do this if they are satisfied that the surviving partner’s income is sufficient to comfortably meet the loan repayments and/or the sale value of the property would cover the outstanding balance owed to the lender. Finally, you don’t say if you have any other life insurance policies of similar duration to the remaining term of your mortgage, other than your death in service benefits (which cannot be assigned against a mortgaged debt). If you do, the lender might allow these to be assigned to the loan, therefore allowing you to reduce the balancing cover (and cost) of the existing policy. Again, this depends on the existing policy being amended and not having to be re-issued. If that happens, says Geraghty, your ages and health circumstances would probably result in a higher premium that might cancel out the benefits of having access to the other policy. Given how there are so many permutations to consider, you really should engage a good broker to help you cut your costs.
* * *
BA writes from Dublin: Post Office savings certificates and bonds are advertised as tax-free savings and I receive an annual certificate of interest on every cert and bond. Does that mean that in my annual tax return, where it states under the heading ‘Irish Deposit Interest, Gross Interest Received’ (from which DIRT was deducted), that one must state how much they have earned each year from the Post Office? If that is the case then these are not tax-free as one will have to pay income tax at the higher rate if their pension/ salary plus extras plus interest on certificates and bonds bring your income over the lower tax rate as these earnings are all added together and you are now taxed on this total.
You are worrying for no reason. The deposit interest you receive from your Post Office savings, which is limited to a sum of €120,000 for an individual and €240,000 for a married couple - is entirely tax-free. You do not have to include the existence of your certificates or bonds or any interest earned from them in your annual tax return to the Revenue Commissioners.
SW writes from Dublin: I hold a small self-administered pension scheme which is administered by a pensioner trustee. Along with your comment on the Sunday Times (17th January) I am opposed to paying the sky-rocket brokerage fees charged for my infrequent buying and selling of shares under the pension scheme. Would you know if it would be possible to set up an on-line, execution-only stock broking account for a small self- administered pension scheme?
According to pension expert Judy O’Rourke of Global Pension Options in Dublin, there should be nothing to stop you and your trustee from setting up a lower-cost execution-only brokerage account in order to reduce your share transaction costs. “But your reader needs to know that under self-administered pension scheme regulations he cannot act separately from his trustee in purchasing shares or any other assets.” This is something you will need to discuss with your trustee.