Are your finances secure if the worst should happen? Could you pay your mortgage or rent each month if your income stopped? What would happen to your family home if you were to die?
Thinking about the consequences of a sudden death or serious illness is never pleasant, but it’s so important to protect your finances for yourself and for those who rely on you, should the worst happen. Everyone with a mortgage should have a type of life cover in place – it’s usually a condition of the loan approval – but what does it actually cover? And if you’re not covered in the way you thought, how else can you keep meeting yourcommitments and protect your standard of living?
In this article, we’ll look at the different protections you can consider, to help you decide what’s right for you.
DecreasingLife Insurance
(NB: NOT the same as Whole ofLife Insurance – see below)
This protection is usually in place for a period of time, and is usually taken out to cover the term of a mortgage or similar financial commitment that decreases over time. You will only receive apayout if you die, or possibly if you are diagnosed with a terminal illness that qualifies under the terms of your policy.
What it covers: in the event of your death, the debt it’s taken out to cover will be paid off.
Who needs it: anyone with a large financial commitment they need to meet, such as a mortgage, school fees or another regular monthly commitment with an end date. This type of cover would not be helpful for paying rent, or another ongoing commitment that doesn’t reduce over time.
How much to get:you determine the period of time and the amount insured – so choose the amount based on your current decreasing commitments.
Wholeof Life Insurance
With this type of policy, your beneficiaries will receive a payout on your death, whenever that happens and not within a certain timeframe. You can be insured for a specific amount (Level Term) or a sum that increases as the policy goes on (Increasing Life Insurance).
What it covers:unlike Decreasing Life Insurance, there is no fixed timescale within which your death would have to occur, and the payout will be made as long as your cause of death is covered.
Who needs it:anyone who is concerned that their death would mean financial difficulties for their loved ones. It’s a lump sum that could help with inheritance tax, funeral costs, or just general living expenses.
How much to get:there are various types of whole life insurance. Some are for a fixed amount, and your monthly premiums will be the same for the length of the policy. Increasing Life Insurance sees the payout amount rise over time with the length of the policy, and the monthly premiums go up in tandem with that. This is usually to guard against inflation and cost of living increases.
Income Protection
Should you become ill or injured due to an accident and are unable to work, this insurance payout will replace your income after your employer’s sick pay no longer covers you.
What it covers: this is not a lump sum, but is designed to replace your monthly income. There will be conditions attached to this, so again make sure the eventualities you want to cover are included.
Who needs it: Anyone who foresees financial difficulties for their dependents if their income was no longer available. This cover is also worth considering for a spouse or partner who takes care of all domestic housekeeping and any dependents, so that their responsibilities can be covered should they become incapacitated.
How much to get:if you want to maintain the income and lifestyle you currently have, your policy should give you a similar level of monthly income as you have at the moment. If you’re insuring someone for the unpaid responsibilities they have at home, consider how much you would need to pay someone else to do them, or how much you would need if you stopped working to become the primary carer yourself.
Critical Illness Insurance
This insurance is designed to give you a cash lump sum payment to support you and your loved ones, if you are diagnosed with a critical illness such as cancer, dementia, or you suffer a stroke.
What it covers: this is usually restricted to specific illnesses as defined by the insurer, so make sure you’re happy with the fine print.
Who needs it: anyone who wants to protect their family’s lifestyle in the event of illness affecting their income.
How much to get:this will be unique to you and your lifestyle. It’s a lump sum payout to support you in the event of illness, so you’ll need to think about how much you would need to support yourself and your loved ones. Your premiums will be worked out on this amount, along with other factors such as your age, health and occupation.
What Next?
Speaking to a financial advisor is the best first step when considering your protections options. We’ve got access to the latest policies available, and can help you to find the best protections mix for you and your family. Give us a call today and take your first step towards a suite of protections portfolio that will take care of you all, should the worst happen.