You need to ensure that you are not just protecting the property you are purchasing, but more importantly you are protecting your family and your income in order to maintain your existing lifestyle. Whilst insuring ourselves against an undesirable event may not be a pleasant thing to think about, the benefit of being able to set aside financial issues at an emotionally challenging time cannot be overlooked. What is the price of having protection and not needing it compared to not having protection in place and needing it?
There are different ways in which you can protect yourself and your family as well as your standard of living to keep your lifestyle safe when your income isn’t. We can assist with setting a budget that you can afford to ensure that you have the best protection suited to your individual needs.
Level Term Life Cover…
…pays a tax-free lump sum in the event of a death during the term of the policy. There is no cash-in value at any time as the policy has no investment element. So, at the end of the policy, it ceases and the life cover ends. The premiums can be guaranteed or reviewable. You can also opt to increase the level of cover year-on-year so the amount is not eroded by inflation.
Decreasing Life Cover…
…works in a similar way to Level Life Cover but the benefit is set at outset and decreases (usually in line with your mortgage) over the term of the policy. The lump sum is still paid tax-free, but, as the policy value reduces over its lifetime, then the premium is cheaper than the level term option.
Critical Illness Cover…
…is usually obtained in addition to Life Cover. It can be purchased on a standalone basis, but it is usually cheaper to do a combined policy. Critical Illness pays out a tax-free lump sum benefit in the event of diagnosis of certain serious illnesses such as Cancer, Heart Attack and Stroke. Children’s Critical Illness is usually included within the policy free-of-charge up to 25% of the sum assured or a maximum of £25 000 depending on the provider. This is in addition to your sum assured. In recent years policy providers have started to pay out on a severity-based level, with partial payments for illnesses that may not be critical but can be serious enough to cause detriment on your day-to-day living. This payment is usually in addition to the sum assured.
The above policies are underwritten at the time of the application, so you will have to provide details of your medical history. It is vital that full disclosure is made at this point, as failure to do so can mitigate a future claim. There are usually 3 potential outcomes from an application:
- accepted on standard terms,
- accepted but certain illnesses are excluded from the policy and
- accepted but the plan has been rated, but there are no exclusions.
Family Income Benefit (FIB)…
…works in the same way as Life Cover or Critical Illness, in that a tax-free payment is made in the either event; but it is usually made monthly or annually to the dependants until the end of the policy. When taking out the policy, it is usually decided how much income would be required per month or year in the event of either death or critical illness. It can be taken on an increasing basis so the benefit is not eroded by inflation. It is usually taken so that the policy expires when the youngest child reaches 18 years of age.
…is designed to provide an income in the event the insured is unable to work because of illness or accident. The level of benefit will depend on your current level of income, as the policy is not designed to put you in a better position than when you are able to work. This level is usually 65% of annual income. It is a long-term income protection plan and the benefit will cease when you return to work, the policy ceases or you die. We normally recommend a provider that covers you for your own occupation, so if you cannot carry out your own job the policy will pay out.
…is put in place to protect the key employees within their firm, so the key sales person, or the IT manager without whom the business would not function properly. Keyperson / Shareholder / Partnership Protection can provide a fixed sum should the individual be unable to work, or even die. The benefit is designed to cover the firm’s expenses in meeting any emergency costs, recruiting a replacement employee and protecting the future of the business.
If a shareholder were to pass away, the firms remaining shareholders or directors may want to purchase the deceased’s share from their estate promptly to maintain control of their business.
With all of these above products, we would write the policies into Trust so that the proceeds can be paid speedily and outside of probate, can potentially mitigate any inheritance tax as paid outside of estate and finally to ensure that the funds go to who they are supposed to go to.
The Financial Conduct Authority does not regulate Inheritance Tax Planning.