The Value of Protection

02 Mar 2013



By Matthew Kneller

An often over-looked area of financial planning is that of insuring against the risk of negative life events affecting a family member such as incapacity, serious illness or death.

There are a number of different Protection Policies available and we believe that several merit considering as part of an overall Protection Planning strategy.

When we carry out a Protection Review for new clients, we often find that they have inadequate cover in place. Most people tend to rely on benefits provided by their employer with additional top-up benefits being viewed as too expensive.

Hopefully none of our clients will ever need to make a claim on a Protection Policy, however, we believe that the reassurance of knowing that you have adequate and appropriate protection in place far outweighs the cost.

The following table provides a summary of four of the most common Protection Insurance:

Capture

There are other types of insurance available including Whole of Life policies, Private Healthcare, Funeral Plans, Redundancy Insurance, Payment Protection Insurance, Mortgage Protection and Gift Inter Vivos Life Insurance.

Term Assurance

Under this type of policy a lump sum becomes payable if death occurs during a particular term.

Many people purchase this type of policy when they take out a mortgage. The aim of the policy would be to pay out a lump sum to a dependent to cover repayment of half or all of the mortgage in the event of death.

It is often a good idea to consider a Term Assurance policy following the birth of a child. Most people tend to look at a 20 year term although the sum assured is down to personal preference.

Income Protection

This type of insurance policy pays out an income if you are unable to work due to injury or illness. Most policies will pay out until retirement, death or you return to work.

This type of protection is sometimes provided by an employer and it is worth checking this. It makes sense to carefully review benefits and tax consequences if topping up existing cover as benefits could be restricted. This is a very important type of Protection Policy and people should consider how they would support themselves and their family if they were unable to work through injury or illness. Benefits are usually based on a percentage of earnings, may not commence immediately and vary as to their payment term.

Critical Illness

This type of policy pays out a cash lump sum if you are diagnosed with a specified ‘critical illness’ during a particular time period.

The lump sum could be used for anything including paying for medical treatment, adaptation for the home, paying off a mortgage or simply making a difficult time more bearable.

Family Income Benefit

This policy provides a regular, tax free, income for your dependents in the event of death. It is relatively cost effective as the total cumulative amount that could be paid out decreases each month a claim isn’t made.

Many people like the idea of receiving a regular income rather than having to generate an income from a lump sum as is the case with a term assurance or whole of life policy.

Protection Review

These are just some of the various Protection Policies available. We would always recommend that you review your Protection Policies from time to time to ensure that you have adequate and appropriate protection in place.

If you would like to discuss reviewing your Protection Policies, please do get in touch.

 

Telephone: 01249 700402

Email: matthew.kneller@fp-fp.co.uk

 

Disclaimer
This article contains the current opinions of the author and does not represent a personal recommendation. Information contained herein has been obtained from reliable sources but cannot be guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission from Fresh Perspective Financial Planning Ltd.