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Financial planning

Personal protection – what is it and why should we have it?

By August 29, 2012February 12th, 2019No Comments

In years gone by, many of us were used to the local insurance man calling at our homes helping us understand our insurance needs and collecting the premiums each week. The local insurance man used to know everything about our families and many attended Christenings and Birthday parties.

Unfortunately the local insurance man no longer calls on our doors, no longer knows our families like they used to and therefore many of us today no longer have the life insurance we used to have.

We now have an opera singing insurance man driving us crazy, but he does not know your family circumstances or your needs and although he will be happy to quote you a price for a level of cover that you ask for, is it the right amount of cover? Is it the right type of cover? And has it been written in trust?

Aviva have recently produced a report into family finances in the UK which highlights that a UK family has a typical income of £2,003 per month, expenditure of £1,765 per month, a mortgage on the family home of £104,157 and £10,563 in unsecured borrowing (credit cards, personal loans and overdrafts).

So how much protection does this typical family need?

Well, each typical family is very different, but in principle it is always sensible to have sufficient life insurance cover to repay your debts on your death. Most of us would not want to leave our loved ones with the mortgage to repay each month or any other debts that we may have accumulated.

Buying lump sum protection cover for death is fairly simple and relatively price driven, as long as your loved ones can prove you have died then the insurance provider will pay the sum assured. You may think that this is a simple purchase on the internet, however this is not always the case.

In addition to covering your lump sum liabilities on death, it is also sensible to cover a proportion of income on death so that the standard of living does not fall for your loved ones. Many households could see the cost of their expenditure increase on the death of a partner. Aviva have calculated that the average cost to employ someone to do a parent / partners work is £26,000 per year, which covers the cost of child care, cleaning, ironing etc… How would your family unit manage with a significant drop in income or a significant increase in expenditure?

Statistically, many of us are likely to suffer a critical illness sometime before death; the average age for a male getting a critical illness is 46 and for women, 44. Cancer remains the most common cause of critical illness claims, followed by heart attack, stroke, multiple sclerosis and benign brain tumours.

When deciding the level of critical illness cover to buy, again it is sensible to try and cover your liabilities, but it is also worth considering if any additional cover is required, for example you may need to make changes to your home for access to medical equipment or make access easier to your home. Again, you may think this is a simple purchase on the internet but sadly, this is not the case.

How many of us insure our cars, our houses and even insurance when we go on holiday, but have not considered protecting our income in the event of accident or sickness? If our income is not protected, then we cannot afford to insure our cars, homes or even go on holiday. Most of our financial objectives are based upon our incomes and the ability to save for our future. What happens to your objectives if your income reduces significantly?

Many of us are provided with valuable benefits from our employers, such as Death in Service (DIS) and income protection (PHI), however the amounts might not cover your family needs and the benefits provided change from employer to employer, so when you change jobs, or suffer from a redundancy you may need to revisit the level of cover again. This could be at a time when you are older, or in poorer health and the premiums could be more expensive.

As highlighted earlier, buying on the internet has its pitfalls, but why?

  • Different providers of insurance have different definitions for critical illness;
  • If you suffer any medical conditions, an internet purchase is unlikely to offer the best value, as different insurance providers will offer vastly different premiums for different medical conditions;
  • Trust documentation, whilst it is available with internet applications, most people do not complete the paperwork, as it may seem too complicated. Trusts allow the speedy payment of the sum assured to the correct beneficiaries which may also help mitigate any Inheritance Tax liabilities (IHT); and
  • As no advice is being given by the internet companies about the type of plan, the sum assured or the term, if anything goes wrong then there is no one to blame or turn to.

At Cullen FP, we can ensure you get the most competitive premiums based upon your specific health details. We can help you complete the trust forms and we will provide you with specific advice on which types of plans you may need, how much cover you need, over what term and whether any additional benefits should be included.

You can value the advice you receive, however it is much more difficult to put a price on peace of mind.

If you would like a review of your protection needs, please do not hesitate to contact one of our consultants.