Posted on 05/08/2024 by Mark Dunning
Illness and death are unpleasant topics to think and talk about but unfortunately, like tax, there is no getting away from the fact that they happen. Life is unpredictable and even the most meticulous of people could find their plans being scuppered by events outside of their control.
If you died, could your family continue to pay the mortgage while still enjoying the lifestyle they have become accustomed to? And if you were unable to work due to illness, how long could you keep paying the bills without drawing down into your hard-earned savings? Do you have savings that you could fall back on?
Having financial protection helps to ensure that you and your family’s finances are taken care of, during what is an already upsetting and stressful time. It can also be a way of protecting the journey towards meeting your financial goals.
The solutions that are right for you depend on your individual circumstances. These include whether you have a mortgage or rent, and whether you have financial dependants, such as a partner and/or children. A financial adviser can recommend the best policies, tailored to meet your individual and collective needs. Regular reviews also help to ensure that your financial provision remains protected throughout your life as your circumstances change.
Life insurance pays-out a lump-sum to your chosen beneficiaries when you pass away. There are different types of cover to choose from but the most common is one that protects a mortgage – this can be a ‘decreasing term’ for a repayment mortgage and a ‘level term’ for a mortgage that is on an interest only basis. When it comes to how long your policy lasts, there are two types of life insurance, whole of life and term assurance.
A whole of life policy continues until you die, so a pay-out is guaranteed e.g. funeral cover or estate planning, while a term policy is for a specific period of time and pays-out if you die during that period e.g. covering the term of your mortgage. Life insurance should be considered by anyone who has an outstanding mortgage and/or financial dependants.
A thought - as well as paying-off the mortgage, a lump-sum could provide an additional cash buffer to ensure your family’s financial security as servicing debt(s) will not represent your entire outgoings.
Critical illness cover provides you with a lump-sum if you are diagnosed with one of the critical illnesses covered by the policy. The lump-sum could be used to help pay-off the mortgage or other debts, or adapt living arrangements to your new circumstances (or both). Critical illness policies vary enormously from one provider to the other, both in terms of the types and severity of illnesses covered. If you don’t think your savings would cover you if you became seriously ill, critical illness cover could be well worth considering.
Family income benefit is another term assurance policy that also pays-out on death. However, instead of providing a lump-sum, it pays out a regular income to your chosen beneficiary from when you die until the end of the policy. For example, if you took out a 20-year policy and died after 15 years, it would pay-out for five years. As its name suggests, family income benefit is aimed at families who want to provide their surviving partner with an income for a set period of time. It could help pay for school fees and other activities, as well as essential bills. This can prove vital whilst you have children/dependants.
Income protection pays-out a regular income to the policyholder if you are unable to work because of an accident, bad back or illness including a mental illness like depression. You can select how soon after a diagnosis you want the payout to start, this is known as the deferred period. In general, the longer the deferred period, the lower your premiums will be. You can also choose between short-term cover, which might pay income over one to two years, or long-term cover, which typically runs until retirement or when the policy ends (whichever is sooner). If you are self-employed or your employer only provides statutory sick pay, income protection could prove especially valuable. With Income Protection, you can claim more than once on your policy.
What is this worth? What price would you put on it?
Financial protection insurance is an invaluable tool for protecting yourself and your family against potential risks and losses associated with unexpected events. With the right cover in place, you can rest assure knowing that all your bases are covered.
Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.
Having accumulated your wealth, we know how important it is for you to preserve it. We work hard to understand your situation, your objectives and your concerns to achieve the returns you need. No financial plan is complete without also considering how to protect yourself and your family against the impact of losing your income, serious illness or death.