Family & Individual Protection

  • By Julie Mitchell
  • 12 May 2020

Family Protection

Whether you are a stay at home parent, an employee or a business owner, we all have responsibilities within our families.  If anything were to happen to us, how would those around us cope and what would the financial implications be, on top of an already emotionally distressing time.

The birth of a child or the house move can be a natural point to assess your current protection provision however the unprecedented global pandemic has forced many to look at their current level of cover and ascertain if they are adequately protected.

Reality

Less than a third of people in the UK have life insurance, which equates to 8.1 million households – significantly less than the country’s 11.1 million mortgaged properties.

Money Statistics detail the average total debt per UK household in January 2020 as £60,363.

Each year one million people in the UK find themselves unable to work due to a serious illness or injury (ABI 2017).

For those with children, the Centre for Economics and Business Research has calculated the cost of raising a child to age 21 as £231,843 with the Childhood Bereavement Network detailing a child loses a parent every 22 minutes in the UK.

Ask Yourself…

With the current suite of protection offerings for households, deciphering which is the most appropriate and in addition the correct level of cover required, can be challenging.  A good starting point is to ask yourself the following questions;

Are you sure you have enough cover?

Are you confident you can choose the right cover?

Will you adopt a DIY approach or ask for assistance?

And ultimately; Can you afford to get it wrong?

There are a number of options available;

Life Assurance

Life assurance does exactly what is says on the tin.  In the event of your death, a tax free lump sum would be paid to your estate.  You can look to place the policy in trust at the outset to ensure that it would pass to your beneficiaries rather than your legal estate, and therefore will not be taken into account when calculating any potential inheritance tax due.

Critical Illness Cover

Critical illness is a contract that will provide a tax free lump sum in the event you are diagnosed with a serious illness covered by your policy in the chosen provider’s terms.  It is essential to understand what illnesses your chosen policy covers as these can vary across providers.

Critical illness cover differs from income protection insurance because you will not receive a regular pay out to replace any loss of income.

Instead you will usually get a one off tax free payment which could be used to help with things like your living costs and mortgage repayments, or used towards paying for treatment or care.

Income Protection

Income protection is a long term insurance contract designed to help when you are unable to work because of illness or injury.  It ensures you continue to receive a regular income until you retire or are able to return to work.

Short term income protection contracts are also available which pay out a monthly sum related to your income, but only for a limited period of time and can cover fewer illnesses or situations.

It is most likely required for the self-employed or employed who don’t have sick pay benefits factored into their employment contract.

Family Income Benefit

Family income benefit is a type of life assurance which lasts for a specific period of time which is determined by your own family situation.  This is usually based on the age of your children and many will adopt a term to take their youngest child to the age of 21, an age at which they are determined to be financially independent.  The policy will pay out a monthly tax free income if you die during the term, until the policy ends.

Who Requires Cover?

It can be a straightforward decision to protect the breadwinner in the household, whose salaries pay the mortgage, utilities and other bills.  The value is tangible and we can easily see the effects of not having this income on a month to month basis.   However, we should not forget to attach a financial value to a stay at home parent.  By not doing so we stand to play Russian roulette in the safeguarding of our families.

Funky Pigeon have looked into eight ‘jobs’ that are embraced when one enters the world of parenting; cooking, cleaning, taxi-ing, caring, nursing, organising, educating and mentoring.  It is an interesting exercise to attach a stay at home parent’s monetary value, click on the below link to find out how much you are worth based on your location and daily responsibilities; https://www.funkypigeon.com/blog/parent-salary-calculator/

For all of those stay at home parent, now is the time to ask for a pay increase, you are invaluable!

Control

Every client’s situation is unique and as such there is no one size fits all when it comes to protection.  Solutions must be tailored to a household’s requirements to generate true peace of mind.  Protection should never be viewed as a standalone product but part of your overall Financial Plan with which you can take genuine comfort in.  A Financial Planner will be able to calculate any protection shortfalls you and your family may have and more importantly assess your planning in its entirety, adopting a holistic approach.  The right Financial Planner will always ensure complete transparency, guiding you along your path whilst ensuring you can adapt to any changes that life tends to throw our way.

Being a parent is my first and most important job, and I count myself extremely blessed to watch my two little boys grow.  But if I don’t get the opportunity to see them mature into young men, then at least I know I protected them in an area I could control.