One of the biggest changes to be implemented ever in the Health Insurance market happened back in 2015, but still needs to be carefully considered today. On that date, we saw the introduction of Lifetime Community Rating (LCR), which was a mechanism brought in to encourage younger people to take out health insurance, to help control premium inflation.

In the years prior to this, the hefty increase in health insurance premiums was caused partly by lots of young people giving up their health insurance cover, probably with a view to re-entering the market as they got older and were more likely to require the cover. This caused issues in the market, which until then operated on the basis of Community Rating. This previous principle meant that everyone paid the same amount for their Health Insurance plan, irrespective of age or when they first took out Health Insurance.

However community rated markets depend on a continuing entry of younger people into the market. Younger people claim less on average and, accordingly, their continuing participation keeps premiums down for everybody. Conversely, if people wait until they are older before taking out private health insurance, premiums will increase for everybody as older people are more likely to claim and insurers take this into account when setting their premium levels.

Lifetime Community Rating was introduced in 2015 to encourage people to take out and continue private health insurance at a younger age, thereby helping to control premium inflation across the health insurance market. The introduction of Lifetime Community Rating provided for late entry loadings on the premiums of those who buy health insurance for the first time at the age of 35 years and older. Today, that means that if you delay taking out your health insurance (and as a result are more likely to make significant claims), you will pay more for the insurance than people who took it out at a young age. This loading will be applied to your health insurance premium every year for up to 10 years. 

In practice, Lifetime Community Rating introduced a 2% loading for every year older you are above age 34 when you take out Health Insurance cover. For example, if you are 35 when you take out a policy for the first time, you will pay an extra 2%, if you are 36 you will pay an extra 4% and if you take out cover for the first time at age 44, you’ll pay 20% more every year for your cover.

The need for advice

There are a number of conditions and rules around Lifetime Community Rating, and we’ve touched on some of them below. Advice should be sought from a health insurance expert in relation to these – we of course suggest that you talk to the Health Team in Lyons Financial Services. These include,

• There are several situations in which credit will be provided, such as for previous periods of health insurance and for some periods of unemployment.
• People who are migrating to Ireland have up to 9 months to take out health insurance, without a loading applying.
• If you had private health insurance previously, but let it lapse, the level of loading is reduced by the number of previous years health insurance cover.
• The maximum loading that can apply is 70% of the total premium. A loading of 70% only arises on very rare occasions, where a person aged 69 or older is purchasing private health insurance for the first time and then for a maximum period of 10 years.
• An individual insurer cannot make an exemption for you from the LCR loading – they cannot waive it.
• Switching from one insurer to another or from one policy to another does not affect the applicable loading. Loadings, if any, will continue to apply and insurers are required to supply each other with proof of an individual’s prior cover.

Has Lifetime Community Rating worked?

On the surface, it has worked. Private health insurance peaked in Ireland in 2008 at 50.9% of the population. But as a result of the economic downturn, it declined sharply over the following years, falling to 43.4% by 2014.

In the run-up to Lifetime Community rating in May 2015, around 50,000 extra people purchased health insurance to avoid the loadings to be introduced, with increased coverage for those aged between 35 to 69 years rising by up to 2.5%.

However, one unintended outcome is that many of those aged between 34 to 54 years have bought lower cover plans, leaving most having to pay additional costs if they need access to services.

Lifetime Community Rating introduced a new level of complexity into the Irish health insurance market. Where complexity exists, so does the need for advice. We suggest that you speak to the Health Team at Lyons at 01 801 5808 to discuss the best route forward for you in relation to your health insurance need

We decided to write about this topic after listening to a very sad radio interview a while ago. It was with a father of three children, who had recently been bereaved after the death of his life partner of 20 years, the mother of his children. She passed away as the result of a medical condition.

The couple had lived together for most of those 20 years, and for all intents and purposes, they were like any traditional family unit. They just never got married. What struck a chord with us was the unfairness that was caused as a result of their cohabiting status. The deceased partner was also the breadwinner, which further exacerbated their situation.

This situation is now becoming all too common. In the last published census results of 2016, there were over 150,000 co-habiting couples in Ireland, a 6% increase on the previous 2011 census figure. About one in eight couples in Ireland are cohabiting without having formally exchanged their vows.

The bottom line is… if you are cohabiting, get expert financial advice. Cohabiting couples face a number of financial challenges that are unique to them, some of which can be mitigated. While the following should not be considered advice, it hopefully will give you a sense of some of the areas to be considered.

The Background

In 2010 the Civil Partnership and Certain Rights and Obligations of Cohabitants Act was enacted. This Act conferred rights similar to those of a married couple on registered civil partners and qualified cohabitants. The rights extended though are different for both.

Registered civil partners now have automatic rights to each other’s estates on death. This automatic entitlement was not extended to cohabiting couples, who instead must apply for a provision out of the deceased’s estate under a redress scheme.

As a result, cohabiting couples need to get expert financial advice and implement solutions, in order to avoid inheritance tax bills in the future.

The family home

As cohabiting couples are not treated for tax purposes in the same way as married or civil partnership couples, the death of one partner could result in a sizeable tax bill for the surviving partner. First of all, cohabiting couples should make themselves aware of the qualification conditions for Dwelling House Relief, which potentially allows a complete exemption from Inheritance Tax and Capital Gains Tax. Meeting these conditions could result in a significant tax saving on the death of a partner, so planning is very important.

The State Widow / Widower’s Pension

The Widow's, Widower's or Surviving Civil Partner's (Contributory) Pension is a weekly payment to the husband, wife or civil partner of a deceased person. This payment was formerly called the Widow's/Widower's (Contributory) Pension. To qualify you must, of course, be a widow, widower or surviving civil partner. This was a significant challenge to the subject of this article, as his deceased partner was the earner. He had no entitlement to a pension based on her social insurance contributions.

Mortgage Protection

There is a potential tax liability for the survivor on the death of their cohabiting partner, as their Inheritance Tax Threshold (the amount on which you don’t pay tax) is only €16,250.

Should the conditions of Dwelling House Relief not be met, if one partner alone bought the house and subsequently died, their surviving partner’s tax liability could be based on the full value of the house (less the threshold amount) – a very sizeable bill.

Arranging mortgage protection on a joint life basis might give rise to a potential tax liability, as could the inheritance of the property itself.  Solutions to be considered include,

• Increasing the amount of life cover to cover the inheritance tax liability
• Taking out a “life of another” policy
• Taking out a section 72 policy to specifically pay the tax

We suggest strongly that you seek advice to find the very best solution for you.

Personal & Family Protection

As cohabitants have no automatic rights to their deceased’s partners assets, unless they have a will in place the proceeds of a life assurance contract could simply end up in the hands of the deceased’s next of kin. This can be avoided by the policy being structured correctly. Again your specific circumstances need to be examined, in order to identify the optimal route so that on your death, your assets end up with your intended beneficiary and in the most tax efficient way possible.  There are important considerations around the type of policy to be used and who pays the premium, in order to ensure the most tax efficient solution.

Small gift exemption

In Ireland the small-gift exemption is a really useful wealth transfer tool. It allows anyone to gift up to €3,000 in any tax year to anyone else with no attaching tax liability.

Cohabiting couples can use this exemption very effectively where one partner is financially dependent on the other. In order to avoid a liability for inheritance tax on a policy, it is crucially important that the person who will benefit from the policy actually pays the premium from his or her own means. If they don’t have means and their partner pays the policy, they are liable for inheritance tax on the death of their partner. The small gift exemption can be used to transfer wealth to the partner without means, who can then use this to pay the premium. This will enable the policy owner to pay the premium where he/she doesn’t earn an income.

 We hope you now have a flavour of some of the important issues that cohabiting couples need to consider in relation to their personal finances. However this is just a snapshot of some of the issues, and certainly should not be considered as advice. We will be delighted to talk you through your specific situation, and help you ensure you avoid any nasty surprises at a later stage.

No, no, no – really how’s life? We’re not saying this just as a polite greeting, but instead are asking this as many people have become a bit more reflective after the forced change in lifestyle during the Covid pandemic, as we’ve all seen how our lives can be totally upended by something completely from left field.

Taking stock is always a good exercise. It’s too easy to get caught up on the treadmill of life in general and in your career, rushing from task to task and always looking to move forwards and climb higher. You’ll get enormous value from stopping, taking a breath, and enjoying the view, reflecting on the road already travelled. In the rush for more, we can forget to celebrate and can deny ourselves the hard-earned contentment and pride in all we’ve achieved so far. This quiet satisfaction will give you the impetus to look again at the road ahead and what you want to achieve.

Because priorities may have changed. We learned many things in 2020 and 2021 – we can work from home, and we can spend more time with the family without killing each other! We found new ways to amuse ourselves within small geographic limits and many people discovered new pastimes, whether they were hiking, sea swimming, cycling, or picking up a golf club again.

And from our conversations with some of you, your priorities around work changed. Many of you enjoy not being in the office five days a week, and working from home will always be part of how you work in future. Many of you are examining how practical and affordable it is to work only three of four days a week now, giving yourself more free time to do the things you enjoy. Some of you really missed travelling and you developed exciting bucket lists of the places you want to visit and have started ticking these off the list.

Others among you really want to leave the world of work behind as soon as possible and get out and enjoy the wider world while you have the health and time to do so.

This is not just an exercise in dreaming, this is about identifying the future life that you want. We want to be part of the journey with you, because when you’ve done the dreaming, we just ask that you bring your hopes and ambitions into our next meeting with you. Then we can help you to make sense of them from a financial perspective, identify how achievable they are today or what needs to be done to bring those dreams to fruition. We can effectively put a financial price on your dreams and will show you what needs to be done to live the life that you want to live.

Life is not a rehearsal, we all get one spin around in this crazy world. Take a step back, think about what the best life possible looks like for you, and then let us help you make it happen.