Inheritance Mortgage Protection and Life Insurance

Who to name as beneficiary when dealing with Mortgage Protection and Life Insurance is important. It depends on the type of product, and what you need to use it for.

Inheritance Mortgage Protection

Your Mortgage Protection policy is assigned to the lender. They benefit in the event of your death, by your policy paying back your mortgage loan. this way, it goes straight to the creditor (your bank), without the delay of the probate process.

Inheritance Life Insurance

1. Assign your policy to a beneficiary – remember that a legal spouse doesn’t have an inheritance tax liability to pay

Life Insurance policies can be assigned to your spouse or your children. Unassigned the proceeds will go to your estate when you die. Be prepared for your life insurance payment to be delayed. The policy will likely get tangled up in probate and take some time to clear.

2. Remember to assign your Mortgage Protection policy to a lender. The lender won’t have to worry about inheritance tax. Your family will if it’s not going straight to the bank.

3. If you need your policy to pay tax. Like gift tax, or inheritance tax, you have to decide at the time you purchase. Otherwise it goes to your estate, and so you guessed it, there will be probate delays, and inheritance tax.


Co-Habitation and Mortgage Protection

It’s fine to not get hitched…

Weddings are extremely expensive. You and your partner made the right choice not to do it. You’re building a life that isn’t just about one day, and you’re very committed. You even have a house together!

With all this in mind, let’s have a quick check and make sure that your financial arrangements are as sensible as you are! Because you’ve got a house and a mortgage, you’ve got mortgage protection, right?

What is Mortgage Protection?

Why do you have mortgage protection? It’s fine to say ‘because the bank told me we had to’, most people start the same way.

But if you’re unsure what it covers, like a lot of people:

Mortgage Protection is an insurance policy against the loan you took out to buy your house.

It DOES pay off the loan in the event of your death.

It DOESN’T keep up payments on your mortgage if you’re unable to due to illness.

Ultimately it protects the bank against loss, and your dependents against debt and loss of their home if you die.

What effect does co-habitation have on Mortgage Protection?

And now we’re back to the marriage question. If you’re a co-habiting couple, an off-the-shelf joint mortgage protection policy could be a drastically wrong choice for you, and here is why:

As you have a jointly held mortgage, you probably assume that you each own half your house. With a joint mortgage protection policy, if one of you die, the bank will receive the money to pay their loan, so the property will be paid off.

However, if you aren’t married, and particularly if you have no children together, you’re strangers in the eyes of the law. If you both have wills, and are each other’s beneficiaries, you can leave each other your half of the property. Now is the time to join the 30% of the population who have wills. There’s never a better day than today.

I don’t have a Will!

If you don’t have children, your parents will receive your share of your home. It WON’T automatically go to your partner, no matter how sensible that might seem.

If you have no will, but DO have children, they could get your share, rather than your partner.

Death and Taxes

What will make this potentially worse is the inheritance tax. For taxation purposes, a co-habiting couple are treated as strangers, and the threshold for these inheritances is €16,250.

This means that any inheritance you receive from your partner, including their half of the home you own together, is taxed at 33% above €16,250. And it’s been a very long time since anyone purchased a house in Ireland costing €32,500.

This could put you in the very unenviable position of owing a large tax bill on a property that should, theoretically, be paid off outright at a time of need for you or your family.

To prevent a Revenue-related mess, you need to fix this situation now, by doing a few things:

Write a will. Immediately. It’s never too early, and you can find a link to tell you more here.

Fix your Mortgage Protection

The second thing is to look at your mortgage protection policy, and do two things:

Increase the amount to cover each of your tax liabilities, eg, if your mortgage is worth €300,000, and you each own 50%, then you would leave each other €150,000. After your €16,250 threshold, you would each still owe 33%, or €44,138 on the remaining €133,750.

So the answer in the example above is to increase the amount you’re insured for, to cover this tax liability. It’s easier to so this on a policy you own individually, rather than the group policy your bank offers you when you apply for your mortgage. If you both have individual means, and separate bank accounts, you can arrange single life ‘life of another’ policies, where you each pay for a policy insuring each other.

The third thing you’ll both need to do, depending on how many assets you have, is to effect a Section 72 policy, on a single life basis, nominating each other as the beneficiary. Section 72 policies are specifically for the purposes of paying off tax liabilities.

Or you could already be planning on getting married, just to avoid these potential pitfalls. No matter which course of action you choose, the only unacceptable one is doing nothing at all. You can run quotes for Life Insurance and Mortgage Protection below. If you have any questions at all, please contact us.

Over 50s Funeral Insurance

What is Funeral Insurance?

Funeral Insurance can be a number of things. It’s essentially a life insurance policy that pays out on death, with the sum being used to cover some or all of the funeral costs and expenses.

Some policies exist purely to pay funeral expenses, such as the policy historically offered by the Credit Union.

However, in recent years, the amount payable by this cover has reduced to a level that’s insufficient to cover the cost. This payment can be between €1,300 and €2,600, usually, although it depends on individual credit unions.

How much does a Funeral cost?

Funeral costs can run across a spectrum, where the location of the funeral can matter as much as the type of funeral you or your family will choose.

To put the credit union payment into context, an average coffin can cost €1,500; an average funeral can cost €4,062, but this doesn’t include the ceremony or burial/removal; a burial plot can cost €1,908, but this varies dramatically depending on location; cremation, on the other hand can cost between €527 and €770.

Holy Hell! Funerals cost this much?

Unfortunately so. Let’s say, like a lot of people, your main asset is your home. You might have some money in the bank, but would your family be able to access these accounts in moments?

Your savings might be great right now, while your still working, but average life expectancy in Ireland is now 81, and a lot can happen between now and then.

Sometimes it’ll be roof repair, but other times it’ll be cruises. You never know.

What are my solutions to cover funeral expenses ?

bank of ireland

Bank of Ireland will allow for payments to be made from your account directly to the funeral director.

Your family will need your account details to fill these claims forms, and you’ll need enough available funds in the account to pay these expenses.


aib

AIB allows for a payment of €5,000 for funeral costs, which as we saw above, may not be enough.


The alternative is that your dependents may end up having to find the resources to pay for your funeral themselves, and wait until your estate has been settled to recover this money.

Inheritance Issues

The probate process in Ireland can currently take up to 48 weeks, or even 500 days. So it can take one to two years before family members can recoup funeral expenses if your estate is asset-heavy and cash-poor.

Seriously? Probate takes how long? Also, what’s probate?

Probate is the judicial process of validating a deceased person’s will. It’s the first step in administering the person’s estate, and resolving all claims to it.

It’s a ridiculously lengthy process, and it can be even more complicated in the case of those who don’t have wills. As many as 7 in 10 people in Ireland have no will at death, also known as ‘dying intestate.’

In these cases, the estate is distributed in line with the Succession Act, 1965. This act provides for very specific divisions of the estate, so if you would have preferred your partner to to get sole ownership of your house, for example, your partner would receive half of your share, with the remaining quarter to be divided between your children.

Depending on the value, they would then be liable for inheritance tax on this, when this could run contrary to your intentions.

How do I make sure my policy doesn’t get tied up in probate?

The best way is to have a specifically named beneficiary on the policy. Otherwise it goes to your estate.

In this way, if the policy is for Funeral Insurance, the beneficiary can apply to the insurance company directly for the payout, without waiting for probate to be concluded.

As this policy is specifically for the purposes of paying for funeral costs, make sure that the beneficiary is aware! Depending on their relationship to you, there may also be an inheritance tax liability.

Example:

John wants an insurance policy for his funeral expenses, for €13,000. He can either assign this to his wife Sinead, his son Larry, or his brother Eric.

OptionAnswer
1. Policy assigned to his wife Sinead?1. There’s no inheritance tax between spouses.
2. Policy assigned to his son Larry?2. Children have a tax free threshold of €320,000, so he won’t have an immediate tax liability, but the €13,000 will need to be taken into account for any additional inheritance.
3. Policy assigned to his brother Eric?2. Eric, as a sibling has a tax free threshold of €32,500, so again, no immediate liability, but the €13,000 will be more significant to Eric in respect of any other inheritances.

Funeral Insurance Solutions

Ugh. Okay. So what are my options?

Although several products are marketed as ‘Funeral Insurance’, these are life insurance policies, in that they pay out on your death. So the question is, what type, and what terms do you need?

Figure out how much you’d like your family to have access to in the event of your death. You’ve seen the average cost of a funeral above. Equally important is the choice between burial and cremation.

Once you’ve selected your estimate figure, the next factor involves your age. If you’re still in your 50s, with no other health issues, you could get a whole of life policy on quite favourable terms.

Keep your pension arrangements in mind too. A term policy in case of emergencies for 15 years, until you retire at 66, for instance, would pay for a funeral before any lump sums were available.

whole-of-life Life insurance (non-medical) policy

Finally, if you’re under 75, but have some health conditions, a whole-of-life (non-medical) policy might be your best option.

These policies are often specifically marketed as funeral policies. As the medical questionnaire is very limited, the access to this policy is very broad.

They can be very easy to get, but will usually be more expensive than a policy underwritten specifically for you.

Contact us to discuss your funeral insurance requirements now

Mortgage Protection Guide Cover

Download your free mortgage protection guide now

Whats Included:

Different types of mortgage protection policies.

Where to buy mortgage protection.

Features of each seller & much more.

Thanks for downloading our mortgage protection guide. You will get an email shortly with a link to download your copy.