Protecting yourself or your family against the financial consequences of death or illness can be hard to consider at the best of times, throw in the different types of cover and the various plans available, then it can make the matter almost impossible to address.
The aim of this section of our website is to simplify this complicated area of financial planning and to help you make the right decisions.
Cost will always be a factor when considering what protection you should take out. However you should take time to ensure that the protection you do take out meets your needs, everyone is different and it is vital to spend time to make sure that the cover you select is right for you.
When looking at this area of your financial planning two decisions have to be made by you or your adviser.
Firstly, you need to decide what ‘events’ you wish to be covered for, this dictates when you will receive a payment from the insurer.
Secondly, you need to decide the type of policy that you want; this dictates how you will receive your payment from the insurer.
We all have different needs, for example, a single person with no children but who has a mortgage may wish to ensure that they can still pay the mortgage should they be seriously or long term ill. However, they may not want to cover the mortgage on death as they are single with no dependants. Conversely, a married couple with children and a mortgage may want cover in the event of illness but also to have the mortgage paid and additional funds on death to help the survivor cope financially.
Cover can be obtained for the following events:
|Death||Generally known as ‘life cover’ this does exactly what you think it will do, pay a lump sum or income should you die
Often used in conjunction with a mortgage or when an individual has dependants
This is the cheapest type of cover
|Critical Illness||An amount is paid out, generally in the form of a lump sum should you contract a specified illness e.g. cancer, heart attack, stroke and the condition meets the definitions laid down by the insurer
The illness whilst serious and certainly life changing does not have to be terminal for a payment to be made
Different insurers apply different terms and conditions to when they will pay out. That is why although cost is important, you should think about how comprehensive you would like your policy to be
This is more expensive than life cover as a critical illness is statistically more likely to occur than death before a certain age
|Income Protection||Pays out an income you be unable to work for a period of time due to accident or illness
Pays the income until you return to work or reaches the end of the policy
More information on each event can be found in this section of our website simply by clicking the appropriate area.
Type of Policy
There are a variety of different policies that can be taken out to cover different events. These are the most common:
|Level Term Assurance||This will pay out a lump sum, known as the sum assured and on death or critical illness
The sum assured can be increased each year to help keep pace with inflation
Level cover is probably the most common form of cover used to provide family protection; it can also be used to cover interest only mortgages
|Decreasing Term Assurance||This again will pay out a lump sum, which can be on death or critical illness
The sum assured however does not stay level, it decreases over the term of the policy
Decreasing cover is generally used when protecting a capital repayment mortgage
|Family Income Benefit||This pays out an income, usually in the event of death, although critical illness cover can be included
The income is paid until the end of the term
|Income Protection||This pays out an income and not a lump sum should you be unable to work due to accident or illness for a prescribed period of time|
It is vital that you make sure that you are covered for the right event and with the right type of policy.
It is also important to remember that not all insurers are the same and that whilst cost is important, so is the quality of cover you will get.
More detailed information about the various types of cover available can be found by clicking the following links:
Alternatively contact one of our advisers on 0115 933 8433, they will be happy to discuss your protection requirements or answer questions about this area of your financial planning.