Protecting your loved ones is likely to be baked into your DNA. You will want to do anything you can to keep them safe and look after them.
But, what happens if you’re not able to do that?
That’s where protection kicks in. And that protection comes in various guises…
Life protection pretty much does what it says on the tin – insures your life, and pays out if you pass away. Most life insurance also pays out if you are diagnosed with a terminal illness with a life expectancy of less than 12 months.
Whilst you can have joint policies, our advice is to always have individual products, so it can be set up to pay into a trust. This is more efficient from a tax perspective.
Life insurance can be set up on a decreasing term to protect a repayment mortgage. Premiums are a set amount, unless anything changes, but the insurance expires at the completion of your mortgage.
We recommend that you regularly review your life insurance to ensure it is still giving the right level of cover. Moving house, increasing your spending or changing your life habits can all have an effect. Remember that whilst your family will be devastated when you are no longer here, you will want them to maintain the quality of life you have created for them. Your life insurance policy can help with that.
But what other protection should you consider?
Critical Illness cover can be hugely beneficial during a very difficult time. If you are diagnosed with one of the illnesses covered by your insurance, you will receive a lump sum to support you with the payment of treatment, mortgage/rent payments, loss of salary and so on – you can use the money as you see fit.
This cover is designed to support you through your treatment. It isn’t life insurance, and would not pay out if you were to die. You can determine how long the cover lasts – anything from 5 to 50 years typically. Whilst it varies between insurers, most critical illness cover does not extend beyond the age of 75. Typically, these policies are designed to protect you during your working life – they are less effective if you are of retirement age. If you would like protection beyond that age, then please talk to us, so we can recommend the best cover for you.
Critical illness premiums are determined based on the amount of cover you require, and whether you wish to protect the cover against the rate of inflation. There are other options to be considered too, when making a choice, but let’s chat about that, if you would to explore critical illness cover.
The other protection you might like to consider is income protection.
This provides a percentage of your salary, should you be unable to work due to illness or injury. Typically, the policy would pay between 50 and 70% of your annual salary, but that does vary dependent on the policy and the cover you have chosen.
Income protection works slightly differently to critical illness and life insurance, in that you receive monthly payments. Importantly, they are also tax free. The payments are triggered after a specified time – typically three to six months.
Your cover would continue for the period you have specified – so it might be until your mortgage is paid, or your pension is due to kick in.
You can also make more than one claim, should you need to. Again, this insurance is suited to those of working age, not people at retirement stage.
It is also important not to get income protection insurance confused with PPI. PPI stands for payment protection insurance and was designed to cover specific debts. There has been a lot of media coverage over the last few years about mis-sold PPI, but this is a very different product.
Are all or any of these protection policies appropriate for you?
That depends on a variety of things including your stage in life, your family set up, your existing financial arrangements and your current level of cover.
Please contact us on 01344 875 310 to discuss your specific circumstances, so we can advise on the appropriate cover to suit you.