Life Assurance

The future financial security of your family is something that needs careful planning. It needs organising and should be subject to regular reviews. Looking after your family and ensuring that there are adequate funds to cope with the unexpected will probably form the cornerstone of your financial planning.

Illness, job loss or the death of a wage earner can plunge families into real financial hardship. Taking a little time to assess your risks and working out how much money you would need to cover debts and provide your family with an income for the future, should be a high priority.

You should consider the need for Life Assurance, Critical Illness or Income Protection Insurance for financial protection against death or contracting a serious illness to cover mortgage or school fees. Private Health cover may be necessary so you can plan in the event of surgery being required. 

With all the insurance products now available, a complete programme of protection could be built to meet your needs and it could be adaptable to cater for future changes in your circumstances.  Whether you are concerned with the need to provide for your family if you die or feel that your greatest risk is from illness there is a product to meet your needs. If your partner also contributes to the family income, then you could build a separate plan for them or take out a joint policy covering you both. 

We have provided brief details here about the options available, but would recommend a meeting to discuss your own unique requirements before making any proposals.

Life Assurance

Most of us have heard of Life Assurance and appreciate that it is a policy provided by a Life Assurance Company that pays out either a lump sum or a series of payments if or when you die. These payments are normally paid without the deduction of any personal income tax, and in most instances are actually tax-free.

It is however worth considering that any proceeds from a life assurance will be added to the deceased’s estate. If this takes the overall estate above the nil band threshold for inheritance tax, this tax would be payable for any amounts in excess of the threshold. This can be avoided by placing the Life Assurance in Trust and therefore separating out these proceeds from the ‘estate’ and keeping them tax free.

The proceeds of a Life Assurance policy can be used: 

    * to pay off a debt such as a mortgage
    * to provide an income for your dependents

You pay monthly premiums or an annual sum to the Life Assurance company for either a given time span (Term Assurance) or in the case of Whole of Life Assurance normally through to death (some Whole of Life policies have a maximum age limit on premiums).

Life Assurance policies can be combined with other forms of insurance, such as Critical Illness insurance so that you receive the lump sum if you are diagnosed with a specified critical illness or on death.

Your Life - Income Protection

Income protection (or replacement) insurance provides an income should you be prevented from working due to sickness or injury. It is commonly know as permanent health insurance or sometimes PHI schemes. The word "permanent" in the name, refers to the fact that the policyholder is the only person who can stop the cover during the term of the policy (this would be through the non-payment of premiums or cancelling the policy directly). The insurance company cannot withdraw cover, under any other circumstance, once the contract has been accepted and premiums have commenced.

These plans work by paying you and income, usually equivalent to 50 - 65% of your usual salary, if you are unable to work for a long period. The income is generally paid until you reach your usual retirement age but will automatically cease if you return to work prior to this point.

If you are self-employed then the benefits under the plan are calculated based on the amount of your taxable income, normally for the 12 months before you became unable to work.

Care should be taken to check what the insurance company means by disability. As a general rule it is better to consider a plan that pays the benefit if you are unable to carry out your usual occupation. This type of cover is referred as 'own occupation'. Some plans will only pay a benefit if you are so sick or disabled that you cannot work at all. You should take into account that it is far less likely you will be unable to do any work than you are unable to continue your usual occupation.

The income from a PHI plan or scheme is tax free (hence the restriction to 50 - 65% of your usual income), but you do need to be aware that any income you receive may have an impact on any state incapacity benefit that you wish to claim. There can also be situations where if you are receiving income from other sources, during the period of your sickness or injury, the benefits under your plan could be scaled back. A good example is where you are forced to retire early from your usual occupation and start receiving an ill-health early retirement pension. In such instances the Insurance Company may scale back the benefits under your PHI plan.

Your Life - Critical Illness

There are plenty of medical conditions and illnesses that, although not immediately fatal, have a serious impact on both our lifestyles and, crucially, our ability to earn a living. And that's where critical illness cover comes in. Critical Illness Insurance covers an individual for life or for a set period against a number of serious illnesses, diseases and medical conditions. Critical Illness cover either pays out a lump sum or provides an income if you are diagnosed with having one of a number of illnesses, including cancer, strokes and heart disease. And the policy will pay out even if you subsequently make a full recovery.

Heart disease, strokes and cancer are the most common causes of death in the UK, but advances in medical science mean that more people survive these serious illnesses every year. Conditions that were once almost always fatal can now be treated - if not actually cured - and the victim might well live on for decades afterwards. This is one reason more people are looking at critical illness cover, either alongside or as an alternative to a life assurance policy.

A policy could help someone with a critical illness pay off the mortgage or other loans, compensate for a loss of income from work, or pay for the children to finish their education. Alternatively, it could pay for modifications to the house and car to make them more suitable for someone with a disability.

More than three-quarters of critical illness policies are sold as an 'accelerated benefits rider' to life assurance policies. This means a policyholder receives his or her life assurance payment once a critical illness is diagnosed, rather than on death. If the policyholder makes a full recovery, the payment is still theirs to keep. If they subsequently die, however, there is no additional life assurance payment. If they die suddenly - or within the 'survival period' - the life policy pays out in the normal way.

Alternatively you could have a standalone critical illness policy which will usually cover the same range of sicknesses as the critical illness part of a combined policy. The difference is that someone who suffers critical illness can make a claim, but any life assurance is unaffected. Should they eventually succumb to the illness, their estate will receive a further lump sum. However, this means that you will be paying for two policies and there would be no payment from the critical illness policy if the policyholder were to die in an accident.

The selection of a suitable critical illness policy is dependent on the individuals circumstances and should be discussed with a Financial Adviser.