It is a sad fact that whilst most of us are quite happy to insure our car, our house and our travel arrangements to their full value, few of us take quite as much care over our health and loved ones.
This guide is designed to highlight the issues which may concern you and introduce you to the different types of cover available which can help secure your family's future. We outline what the different types of insurance could provide and also try to give you a basic idea of how to calculate the amount of cover you might need.
If any of the enclosed information needs further explanation, or you need details on how your own situation might be best served, please do not hesitate to give us a call on the number enclosed.
LIFE ASSURANCE IS A STAPLE FORM OF PROTECTION THAT MOST OF US NOT ONLY UNDERSTAND BUT ALSO SEE AS A NECESSITY.
The most common reason for investing in life assurance will be to cover a mortgage but it is also part of the review we all undertake, perhaps after getting married or, more likely, when we have children.
For a single person with no dependants, life assurance may not be necessary. If you have debts and no savings, then a small amount might be necessary to pay expenses and prevent someone else being landed with those debts. There is also an argument that you should cover a mortgage but in this case, if you are happy to pass the property back to the bank, or if your beneficiaries are more than able to cover mortgage payments whilst the house is sold, then there is probably no need for it.
If you have dependants, however, you need to look at the consequences for them if your income ceased. How much do you earn? Do you have debts? How much is your mortgage or rent? Do you pay school fees? How long before your children will be working? Does your partner work? Could they continue to do so without your support? Even if you don't work, there can be a considerable cost involved in replacing
your income, to look after children and/or the house. Finally, life assurance can be used in inheritance tax planning.
Income Protection Insurance
REGARDLESS OF WHETHER YOU ARE SINGLE OR HAVE 10 DEPENDANTS, IF YOU ARE SUDDENLY UNABLE TO WORK AND YOUR INCOME DISAPPEARS COMPLETELY – THIS HAS A DIRECT IMPACT ON YOU AS WELL AS ON THOSE AROUND YOU.
Income Protection Insurance is less well known than life assurance but potentially has more applications. What it does is replace your income in the event you are suddenly unable to work. Typically, you can cover up to 65% of your gross income – less any state benefits for which you become eligible. This income is paid until retirement age, until the end of the policy term or until you are able to return to work, whichever is the earlier. Consequently, whilst you are recovering or coming to terms with changes in your life, your financial position is secure and you are able to maintain a similar lifestyle. This can be of particular benefit if you are self-employed and when your job does not come with any significant sick pay.
The cost of Income Protection varies depending on what deferment period you choose and your occupation. You can choose a longer deferred period to reduce the cost of cover. The more savings you have, the longer you can fund yourself before a claim needs to start paying out – and therefore the cheaper the policy will be.
THE OTHER MAIN TYPE OF COVER WHICH MANY OF US SHOULD CONSIDER IS CRITICAL ILLNESS COVER.
Critical illness policies pay out in the event that you are diagnosed with a specified critical illness. Like life cover it pays out a lump sum, the objective of which is to help you fund changes which may need to be made to your lifestyle as a result of that illness. For example, you may need to move house to be nearer relatives or friends. You may need to make changes to your existing house to meet new mobility requirements, or you may wish to pay off your mortgage and reduce your outgoings. Alternatively, you may simply want to give up worrying about money and make the most of your opportrunities whilst you can. Like PHI, Critical Illness cover can be just as beneficial, maybe more so, for single people with no dependants as it could be the only source of ongoing financial support in the event of serious illness.
As confirmed above, these types of policy may not cover all definitions of a critical illness. For specific definitions please refer to the Key Features and Policy Documents.
Long Term Care
AS YOU WILL NO DOUBT BE AWARE FROM ALL THE TALK ABOUT PENSION FUNDING IN THE NEWS THESE DAYS, WE ARE ALL LIVING LONGER.
As a result, another issue has arisen which is causing as much financial insecurity and issues for the State as pension funding itself – the cost of long term care. According to the Office of National Statistics (Winter 2009), the proportion of people over the age of 65 will total almost 23% of the population by 2031. However, as we get older, we need more healthcare – and we are more likely to require 24 hour a day support than the rest of the population.
Long term care planning is a specialist area of financial planning which is designed to ensure you can pay the cost of medical expenses or care home fees if you are no longer able to live independently. There are many types of cover – from an immediate annuity, which pays an income to a care home in exchange for a lump sum, to a pre-funded insurance plan, where premiums are paid into a policy now, which will pay your fees in future – should they ever be required. Long term care cover is relatively expensive – but this is because the fees in care homes are expensive and continue to rise. Those who have equity in their houses or substantial savings may be happy to utilise those assets to help pay for any future requirements. However, this could jeopardise the chance of handing over your assets to children or other beneficiaries. Also with no guarantee of how long care fees will need to be funded, a non-insurance approach can prove a bit of a lottery as to whether there will be enough money available.
These types of plan will have no cash in value at any time, and will cease at the end of the term. If premiums are not maintained, then cover will lapse.