Personal Finance

Barry McCall gives us the low-down on life assurance and St. Patrick's Credit Union reminds us to read the small print.

Life assurance

Life assurance is one of those things that most of us don't want to think about. It is at best a mildly depressing subject as it makes us confront our own mortality. We are, after all, talking about taking out a bet with an insurance company in relation to our prospects of survival over a certain period of time.

However, think about it we must and it is a very necessary product for most of us. The big question is how much of it do we actually need? And this is the really depressing part. In order to answer that question we have to imagine our own demise and what we would leave behind to those who depend on us.

In the first instance this requires us to draw up a simple balance sheet of our assets and liabilities. On the one side we will have our savings and things we own like our homes. On the other we have our debts and ongoing commitments such as children's education, household bills and so on.

How healthy this balance sheet is will usually depend on our life stage. For example, when we are in our 20s we will probably have few debts, even fewer long term commitments and no dependents. This means that the requirement for life assurance to pay for any of these things is minimal. Indeed, it could be argued that a footloose and fancy-free twentysomething should only have enough insurance to pay for a good funeral!

Of course, as we get older we usually gain dependents and our debts and ongoing commitments increase. This brings with it a requirement for additional life assurance, or does it? This is a question which has to be looked at quite carefully.

Firstly, most people's debts are already covered by life assurance. For example, if you have a credit union loan it is automatically covered. It is a requirement of the vast majority of mortgages to have a mortgage protection policy and most lenders insist on a form of life insurance as part of any significant loan.

This is not to be confused with the outrageously expensive payment protection policies which some institutions try to push on borrowers. These policies are meant to cover against risks such as illness and unemployment rather than death.

This means that we are more than likely covered for all of our debts. Then we have to look at what other insurance we may already have. In the case of ESB staff this is quite a bit. The Death-in-Service Benefit for ESB staff is extremely good and increases with length of service, thereby mirroring the increased need for insurance as we get older. There is also an excellent Additional Death Benefit scheme open to members which, at a very low cost, offers lump sums of up to four times annual salary.

In these circumstances it is quite likely that an ESB staff member will have no real requirement for personal life assurance. This is particularly so when the cost is taken into account. A €100,000, 20 year policy for a 40 year old will cost around €25 per month – and if they don't die before they're 60 the money all goes to the insurance company.

On the other hand, if you have a spouse or partner who works for a company without such benefits or works solely in the home it might be an idea to take out a policy for them. Indeed, life assurance in favour of a partner can be particularly useful to pay inheritance taxes where two partners in a relationship jointly own a home but are not married to each other and therefore have no Capital Acquisitions Tax allowances worth speaking of.

St. Patricks Credit Union - Too good to be true!

A recent advertisement by a car company offered drivers the following 'special offer' to buy one of their cars.

Car Offer
Retail Price	12,050.00
Deposit	5,867.00
Finance Amount	6,183.0
Doc Fee	73.00
Completion Fee	63.49
Term Months 61
Apr	9.84
Month Repayment	125.56
Weekly Repayment	29.00
Total Amount Payable	7,801.75
Cost of Credit	1,618.75

Would you fall for it?
Well let's compare this offer against using St. Patrick's Credit Union.

The €12,050 is the list price of the car and a cash buyer can usually attract a discount on this list price. In this case say you manage through your supreme negotiating skills to get a 5% cash discount. That means you have to find €11,448 to buy the same car.

If you fully funded this from the Credit Union over five years i.e. 60 months – not 61 months as per this 'special offer' – you'd repay €223.98 per month totalling €13,438.80 for the loan duration i.e. total cost of credit paid to the Credit Union is €1,990.80. This works out at €372.05 more expensive than the car company's offer.

You'd be mad to get a loan from the Credit Union, or would you?

Let's examine:

• With the car offer you have to find the deposit of €5,867. If you don't already have this, chances are you'll have to borrow this either way. At the car offers rate of APR 9.84% this will cost an additional €1,534 in interest paid
• You don't own the car until the final payment is made 61 months later
• There is no loan protection with the car offer, which is free with the Credit Union
• You will have to repay your financial arrangement in full with the car company if you have to sell the car within the offer period
• There are no fees whatsoever with the Credit Union
• The Credit Union APR is only 6.7%
• If you repay the Credit Union loan early there are no penalties or fees levied

So, the devil is in the detail. For the record there is no cheaper unsecured car loan than St. Patrick's Credit Union – so give us a call before you sign up to one of these 'special offers'.

You have been warned!