When the subject of protection or insurance comes up (also known as life assurance or critical illness cover as examples) most people tend to avoid thinking about it because, frankly, it’s quite scary.
What will happen to my family if I was to die? Would they have enough? What would happen to the mortgage? All of these are very difficult questions that our brains are designed to avoid thinking about. But, there has never been a more important time to think about these issues.
In my role, I’m very lucky as I talk to clients a lot about the good things they want to do. How they’re growing their pensions, what are the best investments to make to build their assets etc. However, in terms of planning it is just (some would say more) important to put the plans in place in case things weren’t going to go so well. There’s no point putting away £100 per month into an ISA, if you’re going to need that money at some point soon to live off because you’ve had to stop work because of an accident. When thinking about family protection, these are a few points you should consider:
1- Do we have enough to cover the mortgage?
This should be the starting point for every conversation. If you have a joint mortgage and one of you dies, the mortgage will be retested against the income of the survivor. If that doesn’t pass their test, the bank could foreclose and kick the surviving spouse and children out of the family home. This is an absolute must have in terms of minimum cover for a family.
2- How will we cover living expenses with one income?
The next stage of conversation: If you were to either become seriously ill or die, how would the family live on one income? Would you need more to cover childcare expenses because the surviving spouse is working?
3- Can I guarantee my pension and long-term investment plan?
Unfortunately you can’t guarantee performance, but you can guarantee against loss or disruption of the plan because of death and/or illness. If an investment or savings plan is in place why not think about spending a few more pounds to cover it against the worst case scenario?
4- My employer gives me the insurance as a benefit package
The problem with death-in-service benefits is they are normally paid out as a pension and therefore tested against your lifetime allowance. If you’re either a high earner or have a reasonable value pension, the value you have received from this benefit may be cut significantly because of the lifetime allowance test. Personal cover does not get paid out this way.
5- Can I cover my children’s family?
Absolutely. Even if you don’t need the cover, perhaps the greatest gift grandparents can give is ensuring their children and grandchildren have adequate cover in place. The person paying the premium doesn’t have to be the one who receives the benefits.
People are very happy to make sure their car is insured, their home, their pet and even their mobile phone. So why don’t people think more about making sure their family is properly insured?
