We may all take care to insure our material possessions, but not many of us invest nearly as much in protecting the health of our loved ones and even ourselves.
We've put together a beginner's guide that will help steer you through the range of insurance products on offer to secure you and your family's future and answer any burning questions you have.
This is an easy how-to where we will go through each different type of insurance and what they cover in turn as well as helping you work out the level of protection you need. But we are always on the phone number below if you have any further questions or need advice tailored to your individual situation so please don't hesitate to call.
What is life assurance?
Most of us will have heard of life assurance and understand it as a necessary form of protection but what does it really cover?
Many of us will have life assurance as part of our mortgage but it should also be an essential to consider at every stage of our lives, especially after big life events, and most crucially, after getting married or having children.
Life assurance when you're single with no dependants
If you're single and don't have any dependants you may not think you need life assurance. But should anything happen to you, any debts or expenses which your savings can't cover, could then become the responsibility of someone else who financially benefits from you. In that instance you would be advised to think about taking out a small amount of cover to cover debts and expenses. You will also probably want to have life assurance connected to your mortgage unless all the beneficiaries of your will can comfortably cover the payments until your house is sold, or you are happy for the house to return to the bank.
Life assurance when you have dependants
What would happen to your dependants if your income stopped? This is the key question you need to ask yourself when thinking about life assurance. Consider whether you have debts and how these stand in relation to how much you earn and what your mortgage or rent payments are. Also think about ongoing financial commitments, like school fees or other regular payments that your dependants rely on. How long are these likely to go on for and what can your partner cover on their income alone? If you aren't working, you may well make a significant contribution running the home, like looking after children or elderly relatives, or other roles that would require extra expenditure if anything happened to you. Lastly, you will need to consider any inheritance tax when deciding on your life assurance cover.
What is income protection insurance?
You may not know as much about income protection insurance as life assurance but, whether you have dependants or not, loss of income has a significant impact on not only a partner and any children, but also on you directly.
Despite being a less familiar term than life assurance, income protection insurance has more potential uses. If you unexpectedly have to stop working, it plugs the income gap, covering up to 65 per cent of your pre-tax pay, minus any benefits you're entitled to. You'll carry on receiving an income from your policy until you can return to work, or until the end of the policy term if that's sooner.
This gives you financial peace of mind and security when you're already coping with illness or big changes in your life that have led to being unable to work, and allows you to keep up a similar lifestyle. It's especially beneficial if you're self-employed or your employer doesn't offer very generous sick pay. The cost of cover will depend on what kind of work you do and how long you choose to delay pay outs from your claim after you stop working. This is known as a deferment period and, if you have savings that can see you out for a period of time after you stop working, you might be able to prolong this, making your policy cheaper.
What is critical illness cover?
In addition to life assurance and income protection insurance you should also think about a critical illness policy. If you're diagnosed with a specified critical illness, the policy will pay out a tax-free lump sum. The aim of this cover is to enable any necessary expenditure on changes to your lifestyle because of your condition. This could include moving home to be closer to family support or modifying your house to make it more accessible if you have any restrictions in mobility. Alternatively, you may want to use the sum to pay off your mortgage or any other debts so you can manage your monthly bills better or reduce your financial worries and live life as fully as you can. If you're single with no dependants, critical illness cover may be the only support you receive if you become ill, in a similar way to income protection insurance. Specific definitions can be found in the Key Features and Policy Documents of your policy.
Critical illness cover doesn't normally have a cash-in value and simply stops when the term comes to an end. Plus, if you don't keep up the premiums, you will lose the cover.
What is long term care cover?
With pension funding concerns regularly making the headlines, it's hard to escape the fact that we're all leading longer lives. On the surface living longer is great news but, in addition to the worries about pensions, the state is also facing issues over how it's going to fund rising care costs.
As well as a greater amount of health support, older people are more likely to require all day care. And the number of over-65s will rise to nearly a quarter (23.9 per cent) of the population by 2036, according to the Office of National Statistics (2017 data).
You may be happy to put aside any significant savings or equity in your home to fund any care needs in the future. But using these assets means they won't be available to hand over to your partner, children or other beneficiaries. There is also no certainty that your savings or property assets will cover all the care needed in the long term, so this is a risky approach.
Long term care cover exists to pay for any necessary care home fees or medical expenses, in the event that you can no longer live without this support. This is a specialist area with many different types of policy. You can pay a lump sum for an immediate annuity which will then pay your care home fees or choose to pay into an insurance plan early which will then cover your care costs in future if they're needed. Whatever you choose, long term care cover is quite costly, reflecting the high cost in care home fees, which continues to rise.
Please remember that your home is at risk if you fail to maintain your mortgage payments
Related ArticlesWhat is Level Term Assurance? | What Is Mortgage Life Assurance? | What Is Whole of Life Assurance? | What is Critical Illness Cover? | What is Income Protection Insurance?
This article (Beginner's Guide to Protecting your Future) is intended to provide a general appreciation of the topic and it is not advice.
For more information please contact Nurture Financial Planning Ltd on 01603 673502 or email firstname.lastname@example.org and we will be happy to assist you.
Article expiry: 05 Apr 2018