Now more than ever people are realising just how vulnerable they and their families really are. Many make the mistake of believing the state will get them through, but statutory sick pay only stands at £95.85 per week for 28 weeks, unless you qualify for additional benefits. So you need to ask yourself some tough questions:
1. Will £95.85 per week cover your mortgage, household bills, and living expenses?
2. Will your partner’s income be affected if you’re unwell and need looking after?
3. What do your monthly living costs add up to, and how will you realistically be able to make up the difference?
Most households are so dependent on their current level of income that if it were to be cut in half or lost altogether, due to illness, injury or death, their whole life would be turned upside down.
Losing a loved one, of suffering an illness or injury, is a sad time for any family. It’s easy to assume that when this happens the world will have sympathy for you. But sympathy doesn’t help when it comes to paying your mortgage, bills, and living expenses. If you can no longer afford them – you can no longer have them, and this can have a devastating effect on you and your family that stretches far beyond the traumatic event itself.
Sadly this happens all too often, leading to families losing their homes and causing irreparable damage to their quality of life. This is what inspired us to write this article, so you can protect yourself and your loved ones no matter what life throws at you.
It’s unlikely you’ll need all of these insurance products, as some of them offer similar levels of protection with subtle differences. Choosing the right policies depends on your specific circumstances, and our expert insurance advisors will help you make the right decisions and arrange your policies for you free of charge.
1. Life Cover
Who needs it?
Everyone whose children and/or partner are dependent on their income to fund mortgage payments, debts, or living expenses.
What is it?
Life Cover is designed to provide your family with financial stability should a working family member pass away. It pays out on the death of the policyholder, or when they get diagnosed with a terminal illness and have less than 12 months to live.
If the policy is set up in a Trust, the money is given to the surviving members of the family very quickly, usually as a lump sum. This allows you to cover mortgage payments, estate agency fees, solicitor’s fees, debts, and living expenses straight away. If the policy is not set up in a Trust, the money falls into the deceased’s estate, which can delay the payout. Probate can take 6-9 months for a Will, and inheritance tax implications may also come into play. For this reason, we recommend using a Trust, and we can set this up for you free of charge.
Getting the right Life Cover policy in place means that should your family lose a substantial part of household income due to death, they won’t have the rug pulled out from under them during what will already be the hardest time of their lives.
These policies are available as Decreasing Term Assurance, to mirror a repayment mortgage, or as Level Term Assurance to cover an interest-only mortgage or pay out a lump sum. One of our advisors will be able to talk you through this in more detail to find out which type of policy is appropriate for your circumstances.
No matter how young you are, if you have dependents then you should get Life Cover. The good news is that if you’re young and healthy these policies are usually great value – giving your family substantial financial protection at a relatively low cost.
2. Critical Illness Insurance
Who needs it?
Anyone who wants to make sure they can afford treatment and rehabilitation costs should they fall ill from a serious illness, as well as people whose children and/or partner are dependent on their income to pay a mortgage, debts or living expenses.
What is it?
Critical Illness cover is designed to provide your family with financial stability should a working family member become critically ill due to conditions such as cancer, heart attack, stroke, or permanent disabilities. Typically, you’ll be covered for between 46-177 conditions, depending on how comprehensive your policy is. Most providers cover around 80-100 conditions, and some include all types of cancer besides non-invasive skin cancers.
Some providers offer severity based cover which pays out at different levels depending on how severe the illness is. These policies have various advantages over traditional ones, such as covering more illnesses, providing payments earlier into a disease to fund treatment, and allowing multiple claims. Many providers will also cover any days spent in hospital.
Serious illness can affect anyone at any time. Critical Illness cover is designed to provide financial security through a traumatic period, and can be used to pay for treatment, reduce your mortgage, make modifications to a home to accommodate a life-changing condition, or even to fund holidays to help with recovery.
3. Income Protection Insurance
Who needs it?
Anyone whose children and/or partner are dependent on their income to pay a mortgage, debts or living expenses. This includes the self-employed, who are particularly at risk due to lack of sick pay.
What is it?
Income Protection pays up to 60% of your gross income (tax-free) if you are unable to work due to accident, injury, or illness; allowing you to continue to pay essential household bills and living expenses. It has some similarities to Critical Illness cover but also many differences; your advisor will be able to help you decide which one is appropriate for your situation.
You can reduce the cost of your policy by setting a deferred period of up to 12 months after you are unable to work. This is useful if your work offers sick pay for a certain amount of time or if you have emergency savings. For example, if your work offers 3 months full sick pay and you have some savings that could last a further 3 months, then you may want to reduce your premium by setting your policy to start paying out 6 months after you stopped working instead of immediately.
There are different levels of insurance; you can either opt for full cover which pays until you retire or return to work if you are fit and able to, or you can take out a cheaper policy that will pay for a maximum of 2 years, but will remain in place in case future claims are needed.
It’s worth noting that although the government provides benefits in some situations, for most people this won’t be enough to cover mortgage payments, let alone other bills, and they are also notoriously hard to claim on. So we strongly recommend that you don’t rely on government benefits to get you through, especially if your family has a mortgage to pay.
4. Family Income Benefit
Who needs it?
Anyone whose children and/or partner are dependent on their income to pay a mortgage, debts or living expenses. Family Income Protection is often taken out alongside Life Cover, to provide long-term financial stability should the main breadwinner of the family pass away.
What is it?
Not to be confused with Income Protection, which only pays out if you are unable to work due to injury or illness, Family Income Benefit provides an income to your family should you pass away.
A Life Cover payout may be enough to pay off a mortgage, but then the surviving partner is often left to cover other essential bills and living expenses for the family on just one or no salary. In these situations, inevitably, the house will eventually have to be sold, and the family’s way of life will have to change drastically just to get by.
Family Income Benefit is designed to protect your family’s long-term future, and are commonly used to provide financial stability until your children reach working age. For example, the father may want to insure himself for £2500 a month (30k a year) for 21 years from when his child is born. Then, if he was to die when his child is 11, his family would receive a tax-free income of £2500 a month for 10 years; enough time for his child to finish college and start working.
With Life Cover in place as well, the surviving partner will also be able to pay off the mortgage, so both policies work together to provide maximum financial support through the family’s most vulnerable period.
5. Relevant Life Cover
Who needs it?
Any business owner or director of a limited company who wants tax-efficient life cover, or wishes to offer a form of death-in-service benefit to their employees. This also applies to you if you are an employee and director of a company.
What is it?
Relevant Life Cover offers tax-efficient life insurance through a business, paying a lump sum on the death of the person who is insured, or if they are diagnosed with a terminal illness.
It is tax-deductible against profits, therefore, the client can offset the premiums against their end of year accounts. The proceeds of any claim are also tax-free and are given to the family of the deceased through a discretionary trust.
6. Trusts
Who needs it?
Anyone setting up a Life Cover policy.
What is it?
A Trust is an arrangement that allows a third party, or trustee, to hold assets on behalf of the beneficiary of those assets. It’s a good idea to set up all Life Policies in a Trust, this way the insurance pays out directly to the named beneficiary without having to wait until probate is granted, meaning important bills, fees and debts can be covered straight away. Another advantage is that the payout will not form part of the deceased’s estate, meaning it is not calculated as part of any Inheritance Tax liability.
Please note that regulated advisors, such as Michael Usher Mortgage Services, are able to set up a Trust for you free of charge, whereas non-advice online providers cannot legally do this for you as it has to be done on an advised basis.
A Final Word
Having the right policies in place will provide peace of mind that you and your loved ones are protected no matter what life throws at you.
It’s important you get professional advice to figure out which of these policies are most suitable for your situation and then to find a great deal.
We have access to the full range of providers, so we can find you the right policies that will support long-term financial security for your family. And the good news is there’s no fee! That’s right, our insurance service is completely free of charge.
Due to the potentially devastating consequences of not having the right cover, our insurance experts are genuinely passionate about helping families like yours get fully protected.
As professional advisors, we’re duty-bound to give you the right advice and set you up with the most suitable policies. And we won’t take a penny from you!
