Safeguarding your income and family wealth

What would happen to your family if something were to happen to you or your partner? We all want to protect what’s important to us. And while most people recognise the importance of taking out insurance to cover valuable possessions such as their homes and cars – even pets – far fewer have sufficient protection in place to protect themselves or their families should something unexpected happen to stop them earning income.

Financial protection

Could you and your loved ones cope financially if you had an accident or fell ill and couldn’t work? According to figures from the Office of National Statistics in 2010 [1], 20 per cent of British men and 10 per cent of British women died before their 60th birthdays. Thousands of Britons under the age of 60 are also diagnosed with a critical illness every year and even more are involved in accidents that affect their ability to work.

Many of us expect the Government – or our employers, if applicable – to step in should we become unable to work. However, even if you are employed full-time, your employer will generally stop paying your full salary after a period of time and the State benefits you qualify for can offer only limited help – particularly if you have a mortgage. While most major life events can’t be foreseen, they can be planned for, and here we explain some of the different types of protection available that could help support you or your family in times of crisis.

Life insurance

If the worst should happen, life insurance will provide your family with a guaranteed cash lump sum or income to help them cope financially in the event of your premature death.

You can choose between cover that pays out the same amount no matter when you die, cover that increases in line with inflation, or perhaps cover that’s related to your mortgage, decreasing in line with any outstanding balance. It is worth checking whether your employment contract includes a death in service benefit that will go to your family should you die.

Critical illness insurance

More than eight in ten cancer patients find themselves in a difficult financial position, according to charity Macmillan Cancer Support [2], who estimate that cancer costs the average patient £570 a month due to hospital travel and loss of earnings.

Critical illness cover can offer a financial lifeline to people who develop a serious medical condition. It pays out a tax-free lump sum if the policyholder is diagnosed with a life-threatening specified illness covered by their plan – and you can use any payment you receive any way you want.

While most of us tend to worry about the most common serious illnesses such as heart attack, cancer and multiple sclerosis, critical illness cover can also protect you against a much wider range of specified conditions.

It also makes sense for individuals with no dependants to consider critical illness cover to help maintain their current standard of living.

Income protection insurance

Income protection insurance is designed to help cover your outgoings while you are unable to work – right up to your chosen retirement age.

It essentially pays a selected percentage of your monthly income. Depending on the provider, you can choose to receive up to 75 per cent of your gross salary, but again, you will pay less for cover if you think you can survive on a lower percentage.

Payments usually start after a specified period, for example, 4 or 13 weeks. Many people will defer the start of payments until after any sick pay they are entitled to with their company has finished – most insurers would reduce a claim by any sick pay you are entitled to anyway.
You could even choose to defer the benefit payments for up to two years, perhaps based on having other plans that could support in the interim, such as critical illness cover.

Ensure that you – and your family – are fully protected

Life insurance, critical illness insurance and income protection insurance are designed to protect you in different financial and emotional situations. For many, having a combination of the three is the best way to ensure that you – and your family – are fully protected should the unexpected happen. If you have no dependants, a combination of critical illness cover and income protection may be more appropriate. To review your particular protection requirements, please contact us for more information.

[1] Office of National Statistics: Mortality in the United Kingdom 2010, released 20 January 2012
[2] Macmillan Cancer Support – Cancer’s Hidden Price Tag 2013 report