Jill Kerby

PROTECT YOUR WEALTH: BUY THE RIGHT LIFE INSURANCE The death occurred last week of one of my favourite actors, James Gandolfini, whose role as Tony Soprano, the New Jersey mobster was an extraordinary performance. Tragically, he left behind a young wife, a nine month old baby daughter and a son from a previous marriage. Gandolfini had professional agents and advisers keeping his finances in order, but his premature death at 51 is not unusual: my own brother died at that age leaving a wife and two (older) children; my father at 50. Neither left sufficient life insurance to adequately protect their dependents, so I know from experience how important it is to have life insurance, especially if you still have young children. However, in my travels with the ICA Mother & Daughter Personal Finance seminars around the country I’ve discovered that one of the worst forms of life cover, so-called low cost whole of life assurance, continues to be an on-going financial problem (and loss) for the holders of these contracts and is still being sold, often to new home buyers by their bank. Whole of life assurance, once sold by armies of ‘industrial’ branch insurance salesmen, differs in a number of way from straightforward, good value term or convertible term insurance, the latter of which pays a benefit upon death for an agreed period of years at a fixed price. First, the premium is often set intentionally low at the outset to convince the buyer that it is better value than term cover and to make it easier for the salesman – not a financial adviser in the true sense since the best of them DO NOT sell this insurance – to make the sale and collect huge, ongoing commissions. This assurance – nearly always a “unit-linked” version – involves part of premium paying for the life insurance amount and the rest into the unit linked investment fund. The problem (aside from coupling the two to maximize costs, charges and commission payments) is that the investment value can and often will be eroded to cover the increasing cost of the life insurance element as you age. Reviews only take place after the first 10 years (and before 2001, seldom, if ever.) The investment value also ‘bombs out’ and the policy can be cancelled by the insurer if the owners do not agree to significantly increase their monthly payments. What I’ve discovered on my travels is that many older people in their 50s and 60s, most of whom did not understand what they were buying 20 and even 30 years ago, (they thought they were buying genuine life ‘insurance’ not a high cost investment policy) can no longer afford the ever increasing whole of life premium demands, but that they have no other life cover and still have dependents. “People hang onto to these very poor value policies because they have paid so much money into them and are now reluctant to let them go, especially if there is little or no investment value left, and crystalise that loss,” John Geraghty of LABrokers.ie, a discount, on-line broker and adviser told me last week. “Also, the cost of insurance now is very expensive for them because they are older. But a review may show that they don’t still need this cover; that their other assets [at death] will compensate for the loss of this cover.” In these difficult times, many people say that even life insurance is too expensive. However, term policies have become cheaper in the last five years, said Geraghty and at age 30, a 20 year fixed term, fixed premium insurance policy worth €200,000 will cost a non-smoker in good health just €12.45 a month and if taken out at 45, €31.85. Yet a woman who is now 65 told me at one of my seminars that she and her husband will pay over €75 a month (albeit, a joint policy) for the original €20,000 of whole of life investment linked assurance they bought back in the late 70s; it has practically no investment value. According to Geraghty, these appalling products are still being sold, often as mortgage protection policies to gullible and nervous homebuyers who are pressured by their lender to accept the whole of life version rather than the better value cheaper term, decreasing term or even convertible term policies (that or a small premium can renew at the maturity date without needing to provide up-to-date medical evidence.) “You need life insurance if you have dependents or mortgage protection insurance if you have a homeloan. No, you are not obliged to buy it from your bank which wants to maximize its commission and profits,” said Geraghty. So before you make what could be a colossally expensive insurance mistake, speak to a reliable, qualified, impartial, ideally fee-based broker/adviser about what is the genuinely the lowest cost and appropriate product for you. Tell them Tony Soprano sent you. [Meanwhile, may James Gandolfini, just 51, Rest in Peace.]

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HEALTH INSURANCE RENEWAL TIME… IS BROKER TIME There are some annual ‘big ticket’ expenses no one can (legally) avoid, like paying the mortgage and mortgage protection insurance, motor and home (buildings) insurance if you are a mortgage holder. Another big spend, especially for families is health insurance, though it is not compulsory. Aside from shopping around yourself and checking with all the various insurance companies for the best deals, there are on-line comparison websites to wade through all of which act as brokers for various insurers firms, including the well. The insurance companies then have their own sites to also check (but only for their product range.) In most cases the on-line insurance sites offer premium discounts. Having used brokers, bought directly from insurers and from broker websites (like www.123.ie and www.aaireland.ie ) I now lean towards using a real life human broker for my general and health insurance: I don’t like surprises. On-line sites are too impersonal, call centre staff don’t volunteer enough information and I don’t have the time, energy or expertise to be clear about all the small print and excesses and exemptions. A real life broker you can trust will try to find you the best, appropriate quote but a new one will often match or lower your existing quote by sharing their commission so that you might give him/her your business again. I never recommend using commission brokers for investment policies, you should always pay a fee, but even the commission general insurer is obliged to justify a recommendation and you are entitled to also know the size of the commission he is paid for comparison purposes.) I’m mentioning all this because last week the dreaded annual renewal from our health insurer arrived. As expected our premiums (mine, my husbands and son (a19 year old student) had gone up for the next year by 13.5%, less than last year’s increase but still 13.5% too much. With about 260 different health plans now on the market from the four insurers, the state owned VHI, Laya Health (formerly Bupa/Quinn), Aviva Healthcare and GloHealth, the newest player) I am long past trying to comparison shop, even on the Health Insurance Authority website (www.hia.ie) which is better than it used to be but still a hard slog. Instead, I called the specialist health insurance broker, Health Insurance Savings (part of Cornmarket, owned by Irish Life) and let them do the hard lifting for me. As a long standing and satisfied Laya customer, they reviewed all the Laya plans and recommended that my husband and I switch to two other, but new corporate plans and that my son stay on the still reasonable one he is on (which only went up by €40). Instead of our renewal costing another €419 next year, we were recommended equivalent plans that are €658 less that the new quotations. Compared to what we were paying last year, we will actually have a net savings of €406. While health insurance websites let you compare their plans, they don’t necessarily produce their latest, sometimes short-duration plans aimed at the corporate market but are available to everyone. An independent broker will. Even with ‘best offers’ and discounts and access to cheaper corporate plans, thousands of people can no longer afford health insurance, especially families. As a last resort they are dropping down the cheapest schemes possible, but these don’t necessarily include the outpatient cover that families sometimes use the most: GP visits, physio, x-rays and expensive consultations for which there can be huge waiting lists on the public health. These are often stand-alone, add-on costs that are just too expensive. One alternative is a HSF cash plans (see www.hsf.ie). HSF offers single premium, tax-free cash benefits for the entire family including children living at home up to age 21, (plus other plans for individuals). Premiums range from €9.50 to €81 per month with 100% of the bill refunded up to an annual limit, for GP, dental/optical cover, consultants, physio and other therapies, health screening, scans, x-rays, overnight hospital and hospice stays and even a maternity bonus. The most popular family plan – at €52.50 a month or €630 a year – includes up to €500 a year for dental/optical cover, €190 for GP visits and up to €1,100 for consultant fees, health screening, x-rays, scans. Interestingly, the health insurers offer some limited cash benefits too on some plans with Laya (again) now offering MoneySmart, but only for their ‘Smart” range of plans. At c€20 per event (GP, routine dental, optical, prescriptions) up to an annual limit, the individual or family customer can buy packages of 20, 30 or 40 cash back payments that will cost €248, €405 or €550 respectively in addition to the Smart plan premiums. Can a good healthcare broker explain all these cash back plans? Absolutely. Can that phone call save you money? You bet.

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SCHOOL-GOING ENTREPRENEURS ARE SITTING ON €19.5 MILLION IN SEED CAPITAL The pretty white dresses, the little suits and blazers have being folded and packed away; next year, some will be passed on to other First Holy Communicants or the charity shops. The FHC season may be over for another year but Ulster Bank estimates that the average child will have received €432 in cash from their friends and family this past May. With 60,000 participating children this amounts to a collective pool of about €26 million, of which only €6.5 million will be spent. First Communion money is a great windfall for children, the electronics and toyshops and for post offices, credit unions and banks. But should the children be more adventurous…more entrepreneurial even, with their new-found riches? I’ve been reading a great deal lately about the employment difficulties facing the younger generation. The great economic generational divide is particularly acute in the West, where 25-44s year olds are not only the most indebted in history, but at the highest at risk of unemployment and underemployment. They are expected to have a poorer economic outcome than their parents. The high cost of employing full-time permanent staff (especially in the United States which is now shifting to a costly universal health insurance for the first time), combined with the greater use of technology in manufacturing is dramatically altering the numbers of employment places, even for graduates. If this trend persists, parents will need to be more pro-active about the life and social skills – and not just the academic skills – that their children accumulate. Happily, this is happening in many families. A friend of mine has three children, all bright and quite good academically. The eldest wants to be a doctor; the boy is a keen sportsman. But the youngest, just 11, “is our little star,” says her mother, “a natural entrepreneur.” Not only has she used her First Communion money to first bankroll her hobby of making greeting cards using craft materials and on-line software templates, she then started selling her little packages of cards to family and friends and at the local church Christmas fair. “Little Miss Hallmark” as the family dubbed her, then created her own brand, “Ciarations” that now marks all the little cellophane packages of sweets and baked goods (and her cards) that she makes and sells on the corner of a neighbour’s farmer’s market stall. (She buys all her eggs from the neighbour!). She makes Christmas ornaments to sell (and give away), and doll’s clothes for Bratz and Barbie dolls, now that her mother has taught her how to sew. She wants to set up her own sales website. This exceptional child will go places. At just 11 year old she has both a creative and entrepreneurial streak and is learning important money, life and social skills that no schoolroom or allowance from her parents could provide. This summer, we need to encourage all our school-going children to think about self-employment and starting their own business. Where possible they should use their own money to get started or they can seek small loans of cash or materials – “venture capital” - from the family wealth office (ie The Bank of Mam and Dad or even the family’s persona finance Ark, which I have written about before). It should be explained that the money “invested” in their business venture can be tied up as long term shares that pay a modest return to the lender/venture capitalist, or they can aim to clear their loans out of their profits. Even if they make a loss, it will be an invaluable lesson: success is never a one-way street. Entrepreneurship at a young age will also help when our young learn some day that academic success doesn’t guarantee a paid job, let alone job security. Our 18-21 year olds need to show that they know how to work, not just that they have the academic qualifications for the job. (Young Ciara is already keeping a work file full of flyers, adverts, photos of her products and her sales ledger.) So what can your young ones work at (and advertise) this summer? How about lemonade and ice lolly stands; neighbourhood dog washing and walking. Plant watering and weeding. Can they sell used toys, books and electronic games, or rent them out? Can they hold a plant sale (after dividing big plants into little ones), make birthday cards (like Ciara), set up a computer/DVD/internet courses for their baffled elders? Can they give private tennis, squash, badminton, music or dance lessons to younger kids…or grown-ups? Can they wash cars, deliver newspapers or groceries for the corner shop? Imagine how many part-time micro businesses could be launched with even a small fraction of that €19.5 million gifted during last month’s First Communion celebrations? Imagine how better prepared our children will be in the future to fend for themselves, regardless of the state of the Irish or global economy?

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RETIREMENT LOOMING? STILL IN DEBT? Coping with debt issues at any age is stressful…and expensive, as anyone can attest with credit card bills they can’t clear or a mortgage that is too large and/or in arrears. When you have hit retirement age and are still in debt a whole new set of problems appear: will I have sufficient income to service those debts? What happens if I default? (You could end up insolvent/bankrupt.) Two recent surveys – one from MABS, the free Money Advice and Budget Service and from the ESRI have shown that unlike previous generations of retirees (age 65+) and people approaching their 60s, there is a comparatively large group of older people today still in debt to financial institutions. The ESRI reckons that up to 2010 about 22% of all mortgages were held by 55-64 year olds and about 3% by the over 65s. (The drop reflects the availability of tax free pension lump sums to public servants and private sector pension scheme members.) Paying off outstanding debt is a very typical use of such a lump sum, but what is unusual now, is that one in five near-retirees still have mortgages and that even 3% of all outstanding mortgages in this country (about 21,000) are held by people who are actually retired. The MABS debt study found that as many as 70% of the people they are now seeing with mortgage arrears are between the ages of 41 and 65, albeit the older age group representing a much smaller number of those in arrears than the younger group. (Buy-to-lets would account for a large portion of the arrears problem.) If you still have debt as retirement loom – such as the balance of your mortgage or even all the capital on an interest-only investment property (which you hoped would be your pension!) you might want to consider the following: First, sit down and prepare an income, expenditure, asset and liability account. This means listing all your income (pensions, interest from savings/dividends, rent, etc) now and at retirement; whether you will have a tax-free lump sum or not and your tax position now and at retirement and whether you will exceed the tax-free income threshold of €18,000 for an individual or €36,000 for a married couple. Now mark down your current and expected expenditure now and in retirement. Work out exactly how much you are spending and the cost of all your debt and income returns on all savings. Then mark down the value of all your assets (properties/land, savings, shares/funds other valuables. Finally, list your liabilities: mortgages and loans, credit card balances, etc. Do a budget. Once you know your full financial position you can take action. The main reason why so many older people are still in debt is mainly due to the property purchases they made during the boom years. Since then, the asset value of those properties has collapsed, incomes have fallen and servicing costs are up: they are now in a debt trap. So what can you do? Consider the following: - Use your tax free lump sum – or other savings - to pay off as much of the debt as possible, starting with the most expensive, like credit cards, hire purchase and personal loans, then mortgage debt. If an investment property is not covering its costs and you are subsiding your tenants, you may want to sell the property and use your lump sum to clear the balance. (If the balance is not cleared you may have to renegotiate with your bank and refinance the shortfall.) - Keep working. It isn’t easy to find work these days, especially if you are older but if you can find a job, this money can be used to help pay off your debts. Anyone can keep working, even if collecting a pension though the extra income could affect your tax rate and/or welfare benefits. (Check with the Department of Social Protection if unsure.) - Sell stuff. Consider downsizing to a smaller property. Some pensioners even retire to cheaper countries to clear debt and incur lower lifestyle costs in the future. - Consider an equity release loan to pay your debts. The banks are not facilitating these lifetime loans, but Seniors Money (see seniorsmoney.ie) is still extending finance to the over 60s. The loan values are limited and based on your age and the value of the property. These loans are not payable during your lifetime (unless you move and sell the property) though interest accrues and both the interest and loan is paid out of the deceased person’s estate.

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