At the close of 2019, the number of protection policies existing in the UK sat at 23.7m. Though this may sound like a lot, the number of people holding financial protection policies has reduced year on year over the past 5 years. Only 50% of households with mortgages have life insurance and around 11.1m households in the UK have mortgages. This implies, rather worryingly, that the value of having financial protection in place is being overlooked.
It’s true that people don’t often plan for sickness, accidents or the death of a loved one or business partner. It’s not a situation we prioritise so many people put it off, which is understandable. However, it’s critical that contingencies are in place should such an unfortunate occurrence happen.
Here at Advisa we’re of the opinion that it’s much better to be prepared than to be caught by surprise. With that said, here are some of the different types of financial protection out there that you might consider:
Life insurance is one of the most common and key types of income protection. It can help reduce the disruption caused by the loss of a parent or partner; it can help to compensate for a loss of earnings for those left behind; and it can provide financial security for the people you care about most.
The loss of a loved one is a turbulent time for all of those connected to the person and an infusion of cash can provide the safety net that helps your family deal with any adverse financial consequences resulting from the death.
Add-ons such as critical illness cover can also help towards loss of earnings. If you were to fall terminally ill, the money will help your family deal with a diagnosis. This becomes particularly apparent if you rely heavily on your salary or don’t have a considerable amount of savings to support your loved ones when you’re not working.
It’s also important to consider the type of life insurance you may need. Some companies will offer fixed term policies that run for a set period, whereas some might offer whole-of-life policies. The premium on whole-of-life policies will usually remain fixed for a certain period of time (usually ten years), but it could then be raised after the period ends – so make sure to examine the plans thoroughly.
Family income benefit
Family income benefit insurance is a special type of life insurance policy. With most life insurance policies, your loved ones will receive a lump sum payout when you die. The choice then lies with them regarding what they do with it.
When you take out a family income benefit policy, you can decide the income you would need your loved ones to receive and for how long. Your insurance provider will work out a monthly premium that aligns with your choices. You will then take out the policy for a certain period of time.
If you declared that your loved ones would need £3,000 a month to survive and took out a policy for 25 years but then you died within the first year, your family would receive £3,000 for the remainder of the policy. However, if you were to die after the term of the policy had finished, there would be no monthly payouts.
Sometimes managing a large lump sum can be difficult for some. Family income benefit can help to mitigate this by providing monthly income.
This is another type of long-term insurance, designed to help you if you can’t work because you are ill or injured. Income protection policies will replace part of your income and will pay out until you can start working again. They cover most illnesses that leave you unable to work in either the long or short term, depending on the type of policy and its definition of incapacity.
Payments are usually received after your sick pay ends, or after other insurances stop covering you. The longer you wait, the lower the monthly premiums.
Business protection encompasses a wide range of different factors and can safeguard against a number of unexpected bumps in the road. A policy might include life cover for your employees, which will allow you to pay key employee’s families a lump sum if they die while employed by your company.
You might want to take out key employee cover, which will protect your business if a key member of staff dies or becomes seriously ill so that you can make up for any loss in your revenue or profits. Business protection also includes shareholder or partnership cover which will provide a pay out in the death or severe illness of a business owner, helping remaining owners to minimise disruption to the business by providing the capital to help buy that shareholder’s shares.
Business protection might also include loan protection, which would provide a lump sum to cover your business loans and other credit facilities should a business owner die or become seriously ill. If you lose your business partner, you may have to repay any outstanding business loans and business protection can help to provide the remedy.
In the end, it’s better to be prepared than to be taken by surprise. If you’d like to talk about any of the different types of financial protection we’ve mentioned above, feel free to get in contact today.