Protecting your family, income and assets

A life insurance will pay out a lump sum to your dependants if you pass away. It’s often the most inexpensive way of protecting your loved ones.

There are two main types of life insurance:

• Term – A Term Life insurance is normally set up to cover a specific item, such as a mortgage. The policy runs for the length of the mortgage term, and will pay it off in the event of your death.
• Whole of Life – A Whole-of-Life policy will pay out whenever you die, provided you keep up with the payments. This policy is often used to cover inheritance tax payable by your dependants on your estate.

Life insurance isn’t for everyone. If you have no dependants it is unlikely you will need it. But for most people, it provides exactly the cover their dependants need at a difficult time. It also gives dependants one less thing to worry about.

A critical insurance policy pays out a lump sum upon diagnosis of a critical illness. Insurers have their own lists of what constitutes a critical illness, but normally they will include certain types of cancer, heart attacks and strokes. Parkinson’s disease, major organ transplant and even deafness may also be included.

If you are a 40 year old man, the chances of getting a critical illness such as cancer before age 65 are 1 in 7.

You set the level of cover yourself. The amount you choose will be influenced by how your lifestyle and that of your family could be impacted by a diagnosis. You might need to carry out home alterations, or your children might need additional support. A critical illness may affect your ability to work, maybe permanently. 39% of people with cancer have used savings, sold assets or borrowed to cover the costs or the loss of income caused by their diagnosis.

An Income Protection insurance will pay a proportion of your earnings if you are unable to work due to illness, injury or a critical illness. The major claims on Income Protection are for musculoskeletal issues (e.g. bad backs) and mental health problems. For the employed and self-employed alike, with expenses that depend on a monthly income, Income Protection is a valuable insurance.

Typically, you receive a regular, tax-free monthly income of up to 70% of your pre-tax earnings. This starts after a chosen waiting period, known as the deferral period, which is typically 3 months. This period is set by you, the longer the deferral period the lower the premiums. You can set your Income Protection to pay long term. This means that if you never work again, you will receive an income up to retirement.

This allows you to keep up with essential living expenses and focus on your recovery, rather than worrying about how to pay the next set of bills.

If you are unsure about whether the best policy is a life assurance, critical illness policy or income protection policy, you can select a plan that contains an element of each.

A menu plan can allow an element of life cover, critical illness cover and income protection. As a result, you and family are protected if any of these occur during the policy term. The advantage is that you spread the risk over a range of possible events with a single policy and a single premium.

A menu plan puts you in charge. You decide the level of cover you require, e.g. a lump sum to cover the mortgage should you or your partner pass away, and how much monthly income you would require if you were unable to work. And you are free to adjust the level of cover as required.