When you’re focused on growing wealth and building a life, it’s not uncommon to forget to plan for the unexpected. Life is busy, and you’re no doubt juggling multiple responsibilities and to-do lists.
What’s more, planning for the unexpected often involves preparing for the worst-case scenario – something no one enjoys thinking about.
But without these plans in place, you could be building your wealth on unstable foundations. As such, you and your loved ones may be exposed to unnecessary financial risks.
Read on to discover three ways to protect your wealth against unexpected events and give peace of mind to you and your loved ones.
- Protect your family’s long-term finances with life cover
How will your family get by financially when you pass away?
It’s not a question many like to think about, but having life cover in place could help ensure your loved ones are financially provided for in the event of your death.
Generally, life cover pays out a lump sum to your beneficiaries when you die. There are two primary types of life cover. Before taking out a policy, it’s important to review your options and choose a product that is best suited to your needs and family circumstances.
- Whole of life (life assurance): As the name suggests, these policies generally cover you until your death, provided you keep up with premium payments. They might be suitable for leaving your family a lump sum to supplement the loss of your income, cover an Inheritance Tax bill, or pay for funeral expenses.
- Fixed term (life insurance): This type of cover only pays out if you die within a defined period. When you reach the end of your term, you will no longer be covered and may wish to take out another policy. These policies might be suitable for covering outstanding mortgage debt or protecting your family while your children are under 18, for example.
You typically agree on the coverage amount when you take out the policy. In some cases, you might opt for decreasing cover, perhaps to match the declining outstanding balance on your mortgage; in others, the payout will remain level throughout the policy term.
Some employers may offer life assurance or death-in-service cover as a benefit of employment, so it’s worth checking what cover you already have before determining which policy is right for you.
Life cover can provide valuable protection for your loved ones in the event of your death, potentially helping them to stay in the family home and maintain their current lifestyle after the loss of your income. At a time when your loved ones will be grieving, this can provide invaluable peace of mind and reassurance that the finances are taken care of.
2. Maintain an income during extended periods of sickness with income protection
If you become unwell and unable to work, the loss of your income may put your family under financial strain, potentially for prolonged periods, depending on the circumstances.
Income protection generally replaces some of your lost income if you become unable to work due to illness or injury. Payments usually cover a portion of your pre-tax employment earnings to help you cover essential expenses until you are well enough to return to work.
There is often a waiting period between the start of your illness and the first payment. As such, it’s often wise to have an emergency fund set aside to ensure you can get by financially until you start receiving income protection payments.
You might choose to prolong your waiting period for up to two years, particularly if your employer offers sick pay for an extended period. This can reduce your monthly premiums but could also mean you’re left with little income for a long time, depending on your other earnings and the company's sick pay policy.
In some cases, your employer may offer income protection as an employee benefit, either fully funded or for you to purchase at a reduced rate via your income.
With appropriate cover in place, you and your loved ones can gain peace of mind that you’re protected from severe financial consequences if you become too unwell to work. What’s more, receiving regular payments throughout your illness can allow you the time you need to rest and recover, without needing to rush back to work.
It’s also worth noting that you may be able to continue paying into your savings or pension with income protection payments, so long as your long-term plan isn’t disrupted.
3. Receive a one-off payment when diagnosed with a defined illness with critical illness cover
Similar to income protection, critical illness cover pays out if you become unwell. However, there are two distinct differences:
- Qualifying illnesses: Typically, critical illness cover only pays out if you’re diagnosed with an illness listed on your policy documentation. The illnesses covered are typically severe, life-altering conditions, with milder illnesses, injuries, and mental health disorders generally excluded. Meanwhile, income protection may cover a broader range of health issues.
- Payments: Critical illness cover usually pays out a one-off lump sum upon diagnosis, with some policies requiring you to survive 14 to 30 days after diagnosis to receive the payment. The value you receive will depend on the coverage amount you select when taking out the policy.
You can choose to have the payout remain level throughout the policy term or decrease over time, typically to align with the outstanding amount on a repayment mortgage.
Being diagnosed with a serious illness can be an extremely difficult time, both emotionally and physically. In some cases, critical illness cover may alleviate some of the financial stress so you can focus on your health.
You may be able to get critical illness cover through your employer. Some companies will fund the cover for their employees, while others might enable you to pay reduced premiums via your income. So, it’s worth checking your employee handbook or speaking with your HR department to find out what cover is available.
It’s important to select a policy suited to your needs. In some cases, you might choose to take out both income protection and critical illness policies simultaneously to help cover your bases in the event you become unwell. A financial planner can help you identify the right protections for you and your loved ones, so you can gain peace of mind that your finances are resting on solid foundations.
Get in touch
For support with identifying appropriate protection for your finances, get in touch to find out how our financial planners can help.
Call 02392 231 448 today to find out what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
Note that life insurance and financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
The content of this article was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the content.
