Financial Protection
Winston Churchill
Do you have a partner or family who, in the event of your death, would struggle financially? Or would you struggle financially if you had an illness or injury which meant that you could no longer earn as much as you have in the past?
If so, you should consider protecting yourself and your family with life assurance, critical illness insurance or income protection cover.
In 2022, according to the Association of British Insurers, 91.6% of claims were accepted on critical illness and 96.9% on life cover, which is often included with critical illness protection. Average pay outs were £66,296 and £73,578 respectively.
In the past, our country’s welfare system has attempted to take care of those who fall on hard times through illness or because of the death of a breadwinner. No one is suggesting that the welfare state will not be there tomorrow, but with austerity measures and spending reductions in place for the foreseeable future, we think that financial protection is as important as ever.
Life Cover
To take out a life policy in the UK the insurer needs to know that the applicant (who will become the policyholder) has an insurable interest in the life assured. We each have an unlimited insurable interest in ourselves, our spouse or our civil partner. To insure anybody else the applicant needs to prove that he or she would suffer a financial loss in the event of the death of the proposed life assured - although insurers are relatively relaxed about people insuring their long-term partner even if they are not married or in a civil partnership.
Life cover is available on a stand-alone basis or in conjunction with critical illness cover.
Cover can be established for a fixed term or on an open-ended basis.
A fixed term can be suitable if you wish to have cover to ensure that you can repay a mortgage, for example, or if you are concerned about providing for your children until they are financially independent.
Open ended cover can be suitable if you are concerned about providing for your family even if you die at an advanced age. This type of cover can also be useful if you wish to provide the beneficiaries of your estate with a lump sum with which to settle a predicted Inheritance Tax liability.
Many life policies now include terminal illness benefit. This benefit states that the sum assured will be paid early if you (or the life assured if different) are diagnosed as suffering from a terminal illness (this is usually defined as having less than 12 months to live). However, understandably, terminal illness benefit usually ceases 12 months prior to the end of the policy term.
If you are wondering whether you should have life cover over and above what is required to cover your mortgage, and you would value some professional advice about this matter, please contact us. Taking into account affordability, we will identify the most appropriate cover for you.
Critical Illness Cover
Cover can be established for a fixed term or on an open-ended basis.
A fixed term can be suitable if you wish to have cover to ensure that you can repay a mortgage, for example, or if you are concerned about providing for your children until they are financially independent.
Open ended cover can be suitable if you are concerned about providing for yourself even if you were to contract a critical illness in later life. This might be the case if you intend to ‘work until you drop’! After all, working until you drop might not mean that you will work until you die - it might mean that you will work until a critical illness stops you.
Subject to the condition being as defined in the policy wording, all critical illness polices cover:
- Heart attack.
- Stroke.
- Cancer.
However, many companies (subject to the condition being as defined in the policy wording) cover far more conditions than these three. For example:
- Alzheimer’s disease
- Benign brain tumour
- Blindness – permanent and irreversible
- Coronary artery bypass grafts
- Dementia (including senile dementia)
- Liver Failure or Kidney failure – requiring dialysis
- Loss of independent existence – unable to look after yourself ever again
- Major organ transplant
- Motor neurone disease
- Multiple sclerosis
- Parkinson’s disease
- Terminal illness
- Total permanent disability
Indeed, one insurer now offers a policy that covers no fewer than 161 conditions.
If you are considering buying a critical illness policy, and would value some professional advice, please do not hesitate to contact us. Taking into account how much you can afford, we will identify the most appropriate cover for you.
Income Protection Cover
Those who establish an income protection policy usually choose for it to expire at the age they intend to retire; age 60 or age 65, for example.
At outset, the applicant chooses a ‘deferment period’ of, for example, 3 months. The deferment period is the length of time from when you can no longer work to when the income from the policy starts. The choice of deferment period is yours and will depend, amongst other things, on how long you feel you can survive financially on your own savings. The longer the deferment period you choose the lower the premium will be.
Once the income from the policy starts to be paid it will usually continue until you can return to work or reach the expiry age (age 60 or 65, for example).
Where the policyholder suffers a long-term condition that means he or she cannot undertake his or her usual occupation but can do another type of work that is lower paid, the policy may pay a lower level of income so as to top up the income earned from the new role. In this way lower premiums can be offered.
The amount of income benefit available to an individual is usually set at a level slightly below the individual’s earnings. This ensures that the insured has an incentive to return to work if possible. This approach reduces the amount the insurer might have to pay out and, in turn, enables them to offer more competitive premiums. Policies that pay an income that increases each year are available, ensuring that the impact of inflation on the income payable is reduced.
If you feel that income protection cover is something you should consider, please contact us. Taking into account how much you can afford, we will identify the most appropriate policy for you.
