By DAVID HILL
IN my most recent column, I wrote about the impact of the European Court of Justice ruling on pensions. This week, I want to look at how it will affect life insurance when it becomes law on December 21.
Due to women having longer life expectancy than men, it is currently significantly cheaper for a woman to insure her life than for a man to insure his. This will change in December, when females will pay the same as males for any new life assurance policies taken out after this time. Estimates from Scottish Provident suggest that premiums for females will, on average, rise by over 15 per cent. So there are now fewer than three months for females to review the levels of life insurance cover that they have and to take advantage of cheaper rates.
But how much cover should you have? Well, financial planners use sophisticated cash-flow planning software to work out how much money is needed in the event of death of a wage earner or stay-at-home parent. If you have young children, for example, you may need to replace your income for up to 20 years. Figures from insurance company Zurich show that a 30-year-old female in good health can get insurance of £1 million for only £28.14 per month - less than £1 per day.
While no one wants to become a millionaire in this way, having this sort of life insurance in place can help make things easier and take away financial worries at a very difficult time. Interestingly, £1 million of cover for a 30-year-old male would currently be £37.01 per month.
Don’t forget to place all the life insurance policies you have in trust. Firstly, a trust can save 40 per cent in inheritance tax on death, which would be a tax saving of £400,000 on a pay-out of £1 million.
Secondly, a trust will have trustees in place who will pay out the proceeds at the appropriate time, to the appropriate people. With no trust in place, children would automatically inherit the life insurance at age 18 – not necessarily a good idea to give an 18-year-old a large sum of money! With sensible trustees in place, money can be drip-fed to children as the need arises.
A trust can also protect the proceeds from the claims of a future partner of the surviving spouse.
Next time, I will cover the new obligations for employers to set up and contribute to qualifying work-based pension schemes.
David Hill is a chartered financial planner and independent investment adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email firstname.lastname@example.org or see www.hillsfinancialplanning.co.uk