Many policies will factor in your age, lifestyle, occupation, pre-existing and family medical history. You pay a monthly amount to the insurance company.
Life insurance
Life insurance pays out a cash lump sum in the event of your death, or in some cases, if you were diagnosed with a terminal illness. This could be especially important if you have family who depend on your income – such as children, a spouse or partner, or other relatives. They could use the money towards living expenses, debts, funeral costs, household bills or mortgage payments. It can give you peace of mind knowing it could help provide some financial support to your family if you die.
The sum paid out forms part of your estate so you may wish to consider putting it in a trust. This means that the money passes directly to your beneficiaries at the time they need it most, avoiding any potential inheritance tax liability. Trusts are a complex area so it’s important to speak to your adviser if you are considering this option.
Income protection
Income protection is designed to protect your income if you have an injury or illness and suffer a loss of earnings. This cover helps you to continue to pay your bills, rent or mortgage if you’re unable to work. Most policies have a pre-agreed waiting period – which is the waiting time between when you’re unable to work and you receive payments – and a limit on the amount you can cover yourself for.
Critical illness protection
It’s worth estimating how much you and your family need to live comfortably if you fell seriously ill. You may be covered by your employer benefits, get sick pay or be eligible for some state benefits but how far will this stretch and how long will it pay you for?
Critical illness cover pays out a cash sum if you’re diagnosed with certain illnesses or disabilities. The kinds of illnesses covered are usually long-term and very serious conditions such as stroke, organ failure, cancer, Multiple Sclerosis, Parkinson’s or Alzheimer's disease. Providers cover different conditions so it’s worth checking these – some of which are very specific, for example, a heart attack with specific symptoms. Cover may be more expensive for people with medical conditions, hazardous jobs or hobbies, depending on the provider.
Here are some examples of how critical illness could be used:
- Home alterations such as ramps or installing a stair lift
- Disability vehicle, or alterations to the car
- Replacing a company car
- Short term nursing care costs
Concerned about leaving your family to pay for your funeral costs?
The national average cost of a funeral is currently £4,000 according to Legacy of Lives, a free online funeral comparison site designed to help people through the process of funeral-planning. They believe that ‘for almost 1 in 8 families, finding the money to pay for a loved one’s funeral caused them notable financial problems’.1
Some people choose to take care of their funeral costs as part of their estate planning – to help take the financial burden from their children. Richard Adamson, a financial adviser with M&G Wealth Advice, tells how he helped his clients plan for their funerals so that their children didn’t have to worry.
"I recently met with a retired couple who were concerned about their poor health. They were worried that they hadn’t made any provision for their funeral costs and didn’t want to leave their family with any financial concerns. Given their health issues we offered them both guaranteed over 50’s plans."
With an over 50’s plan you may pay more in premiums than the policy will pay out on death. You're only fully covered after you've had the plan for a specified period of time. If you stop paying premiums, the cover will end, and you won't get anything back. And inflation will reduce the amount paid out, as the amount of cover is fixed.
"The couple were pleased as the monthly cost was affordable for them and after a set period of time, it should fully cover the cost of their funerals. The money would be paid directly to the funeral provider – saving them and their families the distress of having to arrange this during a difficult time. They were really happy to get this all sorted and, more importantly, it gave them peace of mind."
1 legacyoflives.com/where-to-get-help-with-funeral-costs
Protect yourself and your family
Protecting yourself, your family and your family’s financial future is so important. So, if you’re interested in finding out more, or have any questions about the different types of cover, please get in touch with your financial adviser.