Complex risks in life that we all face

Understanding what options you have are key parts of the protection planning process

There are various complex risks in life that we all face, such as serious illness, an accident or death. What would happen if something were to happen to you? Would your family be able to cope financially with the impact an unexpected event might have?

These are not easy questions to ask but it is important to consider what would happen if an unexpected event or accident took place, and how you could protect your family from the financial effects of serious illness or death.

Big part in our lives
Deciding what your priorities are and understanding what options you have are key parts of the protection planning process. This helps you ensure that you have the financial protection most suitable for your circumstances.

Every family is different, but they often play a big part in our lives. It’s important to think about how we can protect them against the unexpected as best we can.

Protection for the unexpected

Life insurance
Death is an unpredictable event, so it’s important to make sure you have the right level of cover in place. The amount of life insurance you need will depend on your individual circumstances. There are many good reasons to take out a policy. For example, if you have dependents who rely on your income, then life insurance can provide financial security for them if you die.

There are different types of life insurance available, so choosing the right policy for your needs is key. Term life insurance provides cover for a set period of time, while whole of life insurance covers you for your entire life. You can also choose between level term insurance, which pays out a fixed amount if you die during the term of the policy, and decreasing term insurance, which pays out less as the policy progresses.

There is also a variation on the basic term assurance theme that is often worth considering as it can reduce the cost of cover. Family Income Benefit is a policy with a sum assured that reduces uniformly over time but provides regular payments of capital on the death of the breadwinner (the life assured).

If you have any debt, such as a mortgage, then it’s also important to take out life insurance to make sure that this is paid off if you die. This will give your loved ones peace of mind and prevent them from being burdened with debt.

What do I need to protect?
Who are your financial dependents: your husband or wife, registered civil partner, children, brother, sister or parents?
What kind of financial support does your family have now?
What kind financial support will your family need in the future?
What kind of costs will need to be covered, such as household bills, living expenses, mortgage payments, education costs, debts or loans, funeral costs?

There is no one-size-fits-all solution, and the amount of cover – as well as how long it lasts for – will vary from person to person.

These are some events when you should consider reviewing your life insurance requirements:

Buying your first home with a partner
Covering loans
Getting married or entering into a registered civil partnership
Starting a family
Becoming a stay-at-home parent
Having more children
Moving to a bigger property
Salary increases
Changing your job
Reaching retirement
Relying on someone else to support you
Personal guarantee for business loans

To prevent your family from being financially disadvantaged by your premature death and to provide enough financial support to maintain their current lifestyle, there are a few more variables you should consider:

What are your family expenses and how would they change if you died?
How much would the family expenditure increase on requirements such as childcare if you were to die?
How much would your family income drop if you were to die?
How much cover do you receive from your employer or company pension scheme and for how long?
What existing policies do you have already and how far do they go to meeting your needs?
How long would your existing savings last?
What state benefits are there that could provide extra support to meet your family’s needs?
How would the return of inflation to the economy affect the amount of your cover over time?

Life insurance not only provides peace of mind to you and your loved ones but is an essential part of creating a sound financial plan.

Income protection insurance
There are a number of reasons why income protection insurance should be a part of your protection planning. Firstly, it can help to protect your income if you are unable to work. This could be due to an illness, injury or disability that means you are unable to work. It can help to cover the costs of your everyday living, such as your mortgage or rent, bills and food.

If you do not have sufficient protection in place this may mean you have to rely on your savings, or on the help of family and friends. Income protection insurance is especially important if you are self-employed or have a family to support. If you are unable to work, your income protection policy will provide you with a replacement income so that you can continue to meet your financial obligations.

There are different types of income protection insurance policies available, so you should obtain professional financial advice to ensure you can compare the different options and fully understand the terms and conditions of the policy.

Self-employed people are at risk of financial hardship if they don’t have sufficient provision in place. Without a regular income, it can be difficult to cover expenses and also save for the future. In many cases, the self-employed are unable to claim for many of the benefits that employees are entitled to, including statutory sick pay.

Being self-employed also means you don’t have the luxury of having an employer to rely on for sickness cover or health insurance, which can make you extremely vulnerable to loss of income or unexpected financial shocks.

So if you’re self-employed, it’s essential you’re prepared for anything by having the right protection in place. Being self-employed can offer numerous benefits, such as flexible hours and the opportunity to work with a wide range of people, but self-employed workers can also face financial vulnerability.

Critical illness cover
If you become seriously ill or are diagnosed with a specified critical illness, even if you are still able to work, critical illness cover could provide you with a financial safety net. The tax-free money can help to pay for treatment, to make adaptations to your home or lifestyle, provide an income for your family if you are unable to work or cover other costs associated with your illness.

There is no guarantee that you will not experience a critical illness during your lifetime, so it is important to have this type of cover in place. It will give you the peace of mind of knowing that you and your family are financially protected if the worst were to happen. Critical illness cover is not a substitute for health insurance.

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