Secret savings in life insurance

Lots of time is spent in finance columns where the writer is really trying to demonstrate how smart they are rather than showing you a way to save money. I don’t try to prove I’m smart because the truth is I’m a regular person like anybody else, but what I am good at is practical advice that works.

Which is why this week I’m going to share one of finances best kept secrets, it’s how to get tax relief on your life insurance! You can call any life insurance company and probably never be offered what I am going to show you today, but trust me, it is both true and accurate.

In fact, it tends to be something that only people who pay professional advisors for will ever even hear about, but for our loyal readers it’s part of saying thanks for reading the Sun on Sunday!

What I’m talking about is using your pension allowances to buy a life insurance for family cover and in turn getting tax relief on the premiums.

First of all I should frame out who this is good for, it’s good for people with families, if you don’t have a person who will lose out financially if you die then you don’t need any life cover really. If you have a mortgage you need life cover for it but again, unless there are other survivors to consider in the event of your death you don’t need anything beyond that.

Then there are the families, the couples expecting kids or those with children already, and for them having a mortgage protection policy alone just doesn’t cut it, because for them the death of an earning parent (even if both are working) could mean that they suffer financially, and for a long time.

Life insurance isn’t cheap, by international standards it is well priced in Ireland but it’s still a cost, and one that we all dislike, often not seeing the value in it, in fact, even with the couples who do get paid out, normally at least one of them never sees the value in it.

So the second best thing you can do is get a cheap quote, that’s just stock ‘copy and paste’ rubbish you hear anywhere, or go on the web and find a discounter, again, this is brainless advice, what you want is the inside track.

And it’s known by the industry name of a ‘Section 785 policy’.

Section 785 of the taxes consolidation act covers pensions and life cover linked to pensions, some times people call it ‘pension term assurance’ (lets be honest, that does sound better!), but the idea of it is that it’s life cover that can be tied in with your pension – but it doesn’t have to be.

You can get this cover on a stand alone basis once you are pensionable and not going beyond your contribution limits (your premium will be treated as if it’s a contribution). In fact, you don’t even need to have any pension at all and you can do this – again, totally legal, and simply using an existing loophole to keep costs down.

The reason most of us can do this is because we are not making maximum contributions, so instead take a cost you might otherwise have and get the tax relief on it! Voila, you just saved somewhere between 20% and 41% off the price of your life cover for the rest every year until you reach age 65! .
There are some catches, there always is, firstly is that you can’t assign it (so you can’t pledge it to a lender if you are borrowing money), it also doesn’t run beyond retirement age (typically 65), so this is no good if you want something to age 75, but because it has a definite end date which is within the period you are not as likely to die (over age 65 your odds go up rapidly), it tends to be less expensive than a term assurance which has an option for getting it extended.

If you call your advisor and they don’t know about this don’t be surprised, I was in the industry for quite some time before I figured out the do’s and don’ts of it. This is one of the best kept secrets there is, I never understood why more people aren’t doing it, because it never made sense for why somebody would willingly pay more for insurance or not use a tax credit in order to lower their living costs! Once again, we’ve got you on the inside track, now you just have to go and set one up so you can save money too!

(this is an extract from the Sun on Sunday column we write)

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