Young family, self-employed, need advice on investments and income insurance

[bewildered1]

Age: 34
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: 0
Annual gross income of spouse: 55000

Type of employment: e.g. Civil Servant, self-employed
Spouse is officially self-employed (set up as limited company), but has exclusive contract with multinational for 2 years.

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving

Rough estimate of value of home 0 - renting
Amount outstanding on your mortgage: n/a
What interest rate are you paying? n/a

Other borrowings – car loans/personal loans etc 0

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? n/a

Savings and investments:
*75000 in current account - want to put this on deposit, hoping to buy house in next year or two so need access to it
*19000 - Ark Life PIP (SSIA) in AIB Managed Fund Series 2
*20000 - Hibernian Ulster Bank 50/50 Investment SSIA

Do you have a pension scheme? Currently, no. Pension scheme from former employer has been converted to Hibernian PRSA, value 9000.

Do you own any investment or other property? No

Ages of children: 4 and 2

Life insurance: New Ireland policy, 400000 cover for both spouses, 66.76 per month


What specific question do you have or what issues are of concern to you?
We have recently moved back to Ireland after several years abroad. We have lump sums sitting in a current account and two former SSIAs. We would like to buy a house in the next few years. Currently we are on one income, husband is self-employed but has exclusive 2-year contract with a large multinational. Wife hopes to take up part-time work soon, but earnings are not likely to be much more than childcare.

Questions:
1) Money in current account - since we're hoping to buy in next few years, we don't want to tie this up for more than 12 months. Just put in best rate deposit account?

2) Other Investments - what to do with the lump sums? Former SSIAs declined dramatically in 2008/09, but appear to be recovering. Considering we have no real pensions, it seems a good idea to leave some money in a market-based investment. Should we stick with the accounts we already have, or move money?

3) Pension - planning to set one up at tax time. Is it better to set up through company (both spouses are listed as directors), or personally?

4) Insurance

a) Life insurance - have policy with New Ireland, but have been told pension term assurance would be better, as we could get tax relief?

b) Critical illness/income protection - what level of cover? I think 26 weeks or even 52 weeks deferment would be ok, considering we are young, able-bodied, have savings, plus wife is professionally trained and we have family support nearby, so it should be feasible for her to go back to work if necessary.

As you can see, we are a bit clueless about all this , so any help is really appreciated!

 

[Brendan Burgess]

1) Money in current account - since we're hoping to buy in next few years, we don't want to tie this up for more than 12 months. Just put in best rate deposit account?

2) Other Investments - what to do with the lump sums? Former SSIAs declined dramatically in 2008/09, but appear to be recovering. Considering we have no real pensions, it seems a good idea to leave some money in a market-based investment. Should we stick with the accounts we already have, or move money?

Money is money. You have €115k in total. There is no need to segregate it as to source. I would think you should have some exposure to the stockmarket. Maybe 50% of your funds? If the exisitng SSIA accounts are losing money, then leave the money there, as any gains from here until you break even, will be free of tax.

Given the uncertainty of financial institutions generally, I would recommend you don't tie up the money at all. There are very good demand deposit accounts paying good interest.

You are a medium term investor. The stockmarket may decline over the next two years or it may rise. On average, it rises more than it falls. Can you handle a fall? If the market falls, can you still buy a house? I think you can.

3) Pension - planning to set one up at tax time. Is it better to set up through company (both spouses are listed as directors), or personally?

You should only contribute to a pension if you are getting tax relief at the top rate. This may be the last chance you get as it is expected that tax relief on pensions will be reduced. Set it up through the company but make sure to set it up through a discount broker as you may be paying for just one year.

4) Insurance

a) Life insurance - have policy with New Ireland, but have been told pension term assurance would be better, as we could get tax relief?

Yes. You can get tax relief on life cover if it's bought as part of the pension. However, it tends to be dearer for some reason.

You won't be able to use the life cover bought through the pension for mortgage protection cover, whereas you may be able to use the existing cover you have. Get a quote and make a comparison.

b) Critical illness/income protection - what level of cover? I think 26 weeks or even 52 weeks deferment would be ok, considering we are young, able-bodied, have savings, plus wife is professionally trained and we have family support nearby, so it should be feasible for her to go back to work if necessary.

Doubt if you need it. it's expensive and difficult to claim on. Save the premium instead.

As you can see, we are a bit clueless about all this , so any help is really appreciated!

At least, you are asking the right questions.

 

[Jimbobp]

I'd have to disagree there Brendan.I've handled a number of Income protection & serious illness claims and once medical evidence is provided, I've found most providers to be honest in their dealings with people, especially income protection providers, who have treated clients very well at claim time. As I'm a broker I'm not impartial, so would love to hear the thoughts of other claimants, but I think for the majority of those self employed PHI or SIC cover is a must.

 

[bewildered1]

Wow, thanks for all the advice, everyone. Brendan - appreciate your reply & advice. I am still unsure about the income protection insurance, though - as jimbobP said, as a self-employed individual, it makes me nervous to think of having no protection should something happen to me. We have a few quotes for IP and the premiums aren't too bad, 80-100/month - even if we did save that, at 3% interest there wouldn't be much to fall back on...