This content is for information and inspiration purposes only. It should not be taken as financial advice. To attain bespoke, regulated financial advice for your own affairs and financial goals please consult one of our independent financial planners.
What would happen to your loved ones if the worst were to happen? It isn’t a pleasant thought, of course, but it’s important to think about this seriously; especially if people are depending on you, such as young children.
Research suggests that as many as 8/10 mortgage holders have no insurance protection. That means that millions of working people are leaving their families vulnerable if they were to suddenly, tragically die. Moreover, as many as 1/3 people admit that if either they or their partner were to unexpectedly become seriously ill and could no longer work, then they would be unable to make ends meet on just one income. Less than half believed that their short term savings would carry them beyond two or three months in such circumstances.
It’s natural for many of us to think that horrible things only happen to “someone else”; not to us. Yet none of us know what life might bring, and it’s important to be as prepared as possible whilst aiming and hoping for the best. In this short guide, we at WMM will be sharing 5 key steps to consider with a financial adviser to help protect your family’s financial plan.
Emergency Funds
Whilst short-term savings are unlikely to carry you and your family through protracted, incapacitating illness, they can certainly act as an important “shock absorber” during difficult circumstances (e.g. sudden redundancy).
Generally speaking, financial advisers tend to recommend that it is sensible to try to accumulate between 3-6 months of living costs, and set these aside as an emergency fund. This can give you enough “breathing space” to find a new job, for instance, or cover a large unexpected bill (e.g. a major roof repair) without it crippling your finances.
Wills & Power of Attorney
A comprehensive financial plan will typically outline how your estate will be handled and distributed when you pass on. The primary way to deal with this is via a Will, which stipulates who should receive your possessions, assets and property, as well as the manner and timing of the handover. Failing to devise a will leaves your estate vulnerable to the UK’s “intestacy rules”, which might not divide your estate in accordance with your wishes.
Creating a will is especially important to think about if you have dependants who might benefit considerably from a meaningful inheritance in the future. Yet it’s also a good idea to consider going a step further and looking into power of attorney. This can enable another trusted person to make decisions about your estate for you, if you are no longer able/willing to make them.
Term/Whole-of-Life Insurance
A life insurance policy is designed to provide a much-needed lump sum to your family if the worst should happen to you. Broadly speaking there are two types: term life insurance and whole-of-life insurance.
The former covers you for a set period, whilst the latter provides cover indefinitely. Naturally, term life tends to be cheaper since whole-of-life insurance is guaranteed to pay out one day. However, the costs for both types of life insurance can vary quite widely depending on several important factors, particularly your state of health and the level of cover required.
There are many policies available on the market and it’s easy to feel overwhelmed, or end up paying more than you need to (sometimes for less cover). As independent financial planners WMM will be able to help you survey your options more widely, and find the ideal product for your needs.
Critical Illness Cover
For many people, critical illness cover (CIC) can feel excessive – especially if we are fit and healthy right now. It’s important to remember that health is not guaranteed, and serious illness can unexpectedly befall any of us, at any time. Having a financial plan which is prepared for this possibility is, therefore, certainly wise.
Even if you are single, CIC could help you cover your mortgage and other monthly commitments if you suddenly found yourself incapable of going to work. For couples (especially those with young children), the lump sum from a CIC policy can help relieve financial pressure from an already difficult situation.
Again, consider speaking to one of our financial planners if you feel that CIC could be an important part of your financial thinking. Sometimes this can be combined with income insurance, for instance, to cover multiple eventualities whilst keeping costs and administrative hassle to a minimum.
Income Protection
Critical illness cover and income protection are quite similar. However, one important area where they differ concerns the “pay out”. The former provides a single lump sum if the terms of the policy are met. Once this money is gone, however, then it’s gone and the policy often ends on pay out of a successful claim. Income protection, however, agrees to pay out a percentage of your salary (e.g. 2/3rds) each month for as long as you are unable to work, due to illness or injury.
Be aware, however, that there are different types of income protection. Some will only pay out for a limited period (e.g. 6-12 months), and many will only cover you up to a certain age.
Final Thoughts
Above, we have outlined some of the main strategies available to those seeking greater protection over their financial plans, and by extension, over the future welfare of their family. Many of these approaches can be combined to provide a bespoke solution for each person, depending on their individual needs and financial goals.
We recommend that you consult an experienced financial planner to help you with this, to ensure that you do not mistakenly “double up” the benefits of multiple insurance policies or fail to provide the level of cover you need. Contact us on 01869 331469 if you would like to discuss this aspect further.
