Nobody likes to think about what would happen if they were suddenly unable to work, and yet illness and accidents happen every day. With adequate protection in place, you will have peace of mind if the worst did happen and you fell ill, became injured, or died. There are many forms of insurance, from life and critical illness to income protection, as well as various business policies. We explore different types of cover to help you protect your family financially.
Protecting your wealth
Many people never consider the financial impact if they suddenly stopped working due to illness, injury or death. In fact, many high earners and professionals rely on their monthly income without realising the true cost.
What would happen to your family without your income? How would they cover your monthly outgoings? Do you have loans or a large mortgage that would need to be paid off? We often prioritise our savings and investments, taking a long-term view of our wealth. But it’s just as important not to overlook the need to protect the very income that funds our short-term plans.
Life insurance
Life insurance pays out a lump sum to support the policyholder’s family financially if they die within the specified term. There are different life policies with varying cover periods, such as Whole of Life, Term Life and Relevant Life. As an example, a Whole of Life policy pays out no matter when you die as long as you keep up the premiums.
One of the most common ways that a family uses a life insurance claim is to pay off a mortgage. At a time when your family are grieving, it can act as an essential financial buffer for monthly repayments and other household bills. Some policies, such as Relevant Life cover, can be used by businesses to reduce their Corporation Tax.
Critical illness cover
Critical illness cover pays out a one-off sum if you’re diagnosed with a serious illness or condition listed in the policy. As a guide, the typical conditions covered include cancer, heart attack or stroke. However, critical illness policies do vary. As you can only claim if you’re diagnosed with an illness specified in the policy, always check the listed conditions.
A critical illness claim is tax-free. Depending on the sum, it can be used to pay off a mortgage or to manage everyday living costs while you’re unable to work. Some people use the funds to pay for private medical treatment and recovery.
Income protection
Income protection is a form of cover that pays out if you’re unable to work due to illness or injury. It’s usually a monthly ‘income’ of around 50 – 70% of your salary.
You can use an income protection claim to help you manage financially, such as paying your mortgage repayments, household bills, and other living costs. If you’re self-employed, then income protection is essential, as you’re unlikely to be eligible for Statutory Sick Pay (SSP).
Protecting your business
Whether you’re a director, shareholder or sole trader, don’t overlook the importance of protection for your business. There are various policies that can help you maintain business continuity and minimise disruption to your day-to-day operations.
Most businesses have a form of cover in place, such as public liability and/or public indemnity policies, but it’s worth considering other policies too:
- Key Person Insurance: This policy helps to protect your business against the financial impact of a key employee’s death or if they’re diagnosed with a terminal illness. As an example, this could be your top salesperson who regularly generates income for your business. A claim can fund replacement staff and cover lost profits.
- Shareholder Insurance: This policy helps to ensure shareholders have the legal right and capital to retain control of the company. A claim can provide funds for business partners to buy out a shareholder who passes away or becomes terminally ill.
Review your protection with Balance: Wealth Planning
Protecting your wealth for both your future and your family’s is vital. Nobody knows what life has in store for us, but we can safeguard against risk when we have the right policies in place. In addition to tax-efficient planning, ensure you have an emergency fund and suitable cover in case you or your partner is unable to work.
At Balance: Wealth Planning, our holistic approach to financial planning covers protection as well as savings and investment strategies. Our financial planners will check your existing policies to see if you have adequate cover in place in relation to your circumstances.
Get in touch for protection advice or a review of your existing policies.
Sources:
https://www.legalandgeneral.com/adviser/protection/products/business-protection/share-protection/
