Posted on 28/11/2024 by Nigel Cobb
Protecting your family from financial difficulties isn’t just about having savings and investments to provide for the long term. It’s also about ensuring your loved ones are provided for should the worst happen. The following are some of the different types of family financial protection.
This pays out a lump sum on death, which could be used to pay off the mortgage and, ideally, provide a cash buffer. As with any insurance policy, you may have to go through an underwriting process, and the cost of the cover will depend on your age and health.
Who’s it for?
If you have children or an outstanding mortgage, you should consider a life insurance policy.
There are several different types of policy to choose from.
Whole of life assurance: This is the most expensive type of cover, providing a guaranteed lump sum on death and, as its name suggests, remaining in force for your entire lifetime. It’s often used for inheritance tax (IHT) planning. If you set up your policy in a trust, it should stay outside your estate for IHT purposes.
Level term insurance: You choose the amount of cover needed, and how long the policy will run for. Typically, this is until the children are grown up, and you have repaid the mortgage. If you die before the end of the term, the policy will pay out.
Decreasing term insurance: This insures you for a fixed period, such as ten years, but the sum assured reduces over the length of the policy. This is more likely to be taken out to run alongside a repayment mortgage.
It can be financially devastating if you are unable to work for a long period because of an accident or illness. This is designed to provide you with a tax-free income if you are unable to work in these circumstances.
You can opt for this income to kick in after a certain period, such as three, six or twelve months. The longer the deferred period, the lower your premiums will be. When you need the income to start will depend on any cover provided by your employer, and your level of savings.
Check the terms carefully so you understand how the policy works, and when payments would begin. How much you pay for cover will depend on what level you choose your age, employment, and any health conditions.
Who’s it for?
It can be particularly valuable for the self-employed who do not have any cover through an employer. If you are employed, you are entitled to 28 weeks of statutory sick pay, but you might find cover is extended beyond that. Anyone who wants to protect themselves against loss of income over the longer term should consider this cover.
Types of cover: You can choose from short-term and long-term cover. Short-term cover could pay an income over one to two years, until you are able to return to work, whereas long-term cover might run until retirement, or when the policy ends, whichever is sooner.
This cover pays out a lump sum soon after the diagnosis of one of the critical illnesses covered by the plan – typically, policies cover core conditions such as heart attack, stroke and cancer. The lump sum could be used to pay off the mortgage and other debts, cover outgoings such as school fees, or to adapt living arrangements to your new circumstances.
It’s important to remember that critical illness policies only pay out for certain conditions, which will depend on the particular policy. Some policies offer guaranteed premiums, which stay the same throughout the policy term, whereas others have reviewable premiums, which can increase over time.
Who’s it for?
You might want to consider critical illness cover if you don’t have enough savings to cover you if you were to become seriously ill, or you don’t have an employee benefits package.
This is like level term insurance in that it covers you for a set period of time. However, instead of paying out a single lump sum, it provides a regular, tax-free income from when you die until the end of the policy. For example, if you take out a 20-year family income benefit policy and pass away after ten years, it will pay out for a further ten years.
Who’s it for?
This cover is suited to those who want to provide their surviving partner with an income for a set period rather than a lump sum pay-out. It’s considered a relatively inexpensive form of life cover, providing a regular, tax-free sum if the insured dies.
Some people have private medical insurance (PMI) through their employment. This will pay for the cost of private healthcare and could enable you to see a specialist more quickly than under the NHS. If you don’t have PMI through work, you can pay monthly or annual premiums for a policy. Beware that most policies will not cover pre-existing medical conditions.
Who’s it for?
This depends on your budget, and how much you want this cover – it’s a personal choice. You are entitled to free treatment on the NHS, but you might want PMI if, for example, you would prefer to see a particular specialist and use private hospitals.
It’s important to seek advice because your options are unlikely to be clear cut. Your Dentons Adviser can help you work out the right cover for your personal circumstances.
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.