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Life Insurance
Life insurance, also known as life cover, is a policy designed to provide your loved ones with a lump sum in the event of your death or a terminal illness. This sum can be used to clear a mortgage, outstanding debts, and to cover other costs, for example funeral expenses. By taking out protection, it reduces the financial strain your death could place on your family and offers valuable peace of mind. It’s particularly important if you have dependants, or children, or if you plan to in the future, having cover ensures they can maintain their standard of living and remain living in the family home, even when you are not here.
If you’re employed, your benefits package may include some level of life insurance, known as Death-in-Service. However, it’s important to check the details, as coverage provided by employers is often limited and may not fully meet your family’s needs, plus it will be lost if you change jobs or are made redundant. If the payout is insufficient or tied to your employment, it would be worth considering taking out an additional personal policy to ensure you are always adequately protected.
Life insurance can be an essential component of financial planning for buy-to-let landlords, making life insurance an important consideration. Life insurance can provide added financial security not only for the landlord but also for their dependents, mortgage obligations, and tenant agreements. Simply selling a property on your death is not always as easy as it sounds, taking into consideration it can take months or even years to sell a property, all the while leaving your beneficiary exposed financially if the tenant fails to pay the rent, or if the property is empty.
We often protect our car, home and pets before ourselves, sometimes assuming that insurance is too expensive and outside a monthly budget.
Below are some facts about how the average UK household likes to spend their money every month…
Takeaway £38
Gym and Sports £30
TV Licences and Subscriptions £29
Eating out £72
Gambling £13
When compared with these expenses, you may be surprised to discover that the average household only spends £13.86 per month on life insurance.
The question would be, can you really afford to not consider protecting yourself?
Taking out a policy while you’re younger is often beneficial, as premiums tend to be lower, making it a cost-effective way to secure long-term protection
Critical Illness Cover
Critical illness cover is designed to provide a lump sum that is paid if you’re diagnosed with a specific serious illness such as a heart attack, stroke, certain types of cancer or conditions like multiple sclerosis. There are over 40 illnesses covered where full payments are made and there’s also partial payment products available to provide a lump sum for less advanced illnesses, for example low grade breast cancer with minimal treatment. The exact conditions covered will typically be outlined by the policy’s terms and conditions. Policies can also include Total Permanent Disability Insurance, which works as a ‘catch-all’ insurance, and be claimed on if you have an illness which is not regarded as critical but leaves you totally and permanently disabled.
Critical illness cover is ideal for anyone that would be in financial trouble if they were unable to work. For instance, if your family has no other source of income other than your job, then critical illness cover will ensure that you have some form of income or money to survive on should you end up being too ill to work. The payout can make a big difference in your life, such as being able to pay off your mortgage earlier, afford the services of a carer, to seek treatment outside of the NHS, or to simply lean on a sum of money whilst you recover before returning to work.
Why is Critical Illness Cover so important?
Breast, prostate, lung and bowel cancers together accounted for over half of all new cancers in the UK* *2014
Nobody likes to think about cancer, but around one in four people in the UK face poor health or disability after treatment*. Living with an illness is stressful enough for you and your family, but worrying about the implications of not having financial cover does not bear thinking about.
50% of adult cancer patients diagnosed in England and Wales are predicted to survive 10 or more years**. It is often living with the disease that really needs thinking about.
Having critical illness cover to give peace of mind and security for you and your family in the face of tragedy is now more important than ever.
*2013 **2010-2011
78% of female breast cancer patients are now surviving over 10 years*.
Cancer survival in the UK has DOUBLED in the last 40 years. *2010-2011
Sources: Cancer Research UK, Macmillan Cancer Support
Income Protection
As much as we look forward to time off work, the reality is that long term absence due to illness or injury can be very stressful. If you are unable to work, the last thing you want to worry about is paying your bills and putting food on the table. This is where income protection comes in. It pays out a proportion of your salary, so you can focus on the thing that really matters: getting better. It covers serious illnesses and what would be considered more minor illnesses, such as a bad back, all of which would render you unable to work. Income Protection is not designed to pay if you are made redundant or are unemployed.
Your employer may pay out your full salary for the first 6 months, for instance, although this is often less. This is the point at which you would normally have to start using up your hard-earned savings. But with income protection insurance, you are covered. For less than you may think you can guarantee peace of mind for you and your family until you are ready to get back to work.
You should consider income protection insurance if you’re unable to rely on savings or employee benefits to get you through an illness. If your living expenses are too high and not affordable, should you become unable to work, then income protection insurance will guarantee that you can still stay afloat until you recover or secure an alternative form of income.
Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income.
Would you cope on state support, which is currently as little as £99.35 a week?
How long would your savings last if you were unable to pay the bills or your mortgage?
Business Protection
Financial protection applies to businesses as well as individuals and for many businesses (especially smaller ones) may be dependent on certain key individuals. This is where Key Person Insurance comes in and is a policy that businesses take out on the life of a key employee or owner. Types of coverage include, a payout to the business in the event of the Key individual’s death to be used to cover immediate expenses, lost revenue or to hire a replacement. Critical illness cover to protect against loss of income and helps with expenses if the key individual is diagnosed with a serious illness, which ensures the business can continue operating during their recovery. Lastly, income protection which can offer a safety net by replacing a portion of the key individual’s income if they’re unable to work for an extended period, stabilising the business financially during that time.
Business protection extends to Relevant Life Plans, which are a type of life insurance policy specifically for businesses, allowing them to provide tax-efficient life insurance benefits to key employees and directors. The Relevant Life plan is owned by a company for the life of an employee, typically a key person or a company director. If the individual covered by the plan dies, a tax-free lump sum is paid out to a nominated beneficiary. The premiums paid by the business are considered a business expense, which can potentially reduce the company’s taxable profits. Relevant Life Plans are straightforward to set-up compared to group life insurance policies.
Whole of Life Insurance
A whole of life policy is a long-term insurance policy designed to pay out a cash lump sum on death, whenever that occurs. When considering whole of life insurance for inheritance tax (IHT) planning, consulting with a tax planner is crucial. They can provide tailored advice to help you navigate the complexities of IHT laws and optimise your estate planning strategy.
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