We should all think about what happens to us when we die, suffer a critical illness or have to live with the effects of a long term disablement. As we get on with our day to day lives it's easy to push these issues to the back of our minds. Often it's only when something happens to someone close to us we too feel vulnerable.
If you haven't already written a Will and protected yourself and your family with insurance, then you should do so now. For information on what happens to your estate if you die without a will you could visit the Revenue & Customs (HMRC) website at http://www.hmrc.gov.uk/cto/customerguide/page14-1.htm .
For general information about insurance the Money Advice Service has a Guide 'Insurance'. It's available by phoning 0300 500 5000 or visiting www.moneyadviceservice.org.uk and going to Free printed guides in the Your money tab.
Don't forget to take into consideration any benefits your employer may provide for you as well as any State benefits you may receive.
Although most life and critical illness policies are taken out on an individual life there are some occasions where it is appropriate to have a joint life policy. This sometimes reduces the overall cost. For example a joint life Mortgage Protection policy taken out by joint borrowers on a mortgage may cost less than two individual policies. It will be set up to pay off the mortgage on first death (or diagnosis of a critical illness if covered). This can lead to less flexibility in future when circumstances change, for example in divorce. The other instance when a joint life policy may be appropriate is where there is an inheritance tax liability only on the second death of a couple (married or in a civil partnership).
Put simply you insure yourself for a certain amount of money and if you die within the term of the insurance it will pay out. This can be a very cost effective way of protecting your family against your early death. By keeping your life insurance separate from your savings it will allow you to save and spend your money however you want to. If you survive the term you don't get anything back.
To decide how much you should insure yourself for you might want to consider any debts you want to be repaid and how much money you want to leave for your partner and children. How long (the term) you take out the insurance for may depend on how long your loan is going to be outstanding and how long your dependants will be dependant on you.
If you die the proceeds from any life insurance policies will normally become part of your estate and may be liable to inheritance tax. Your family may have to wait until probate is granted before they can benefit from the insurance you have taken out. Writing a life insurance policy in a trust, which is a legal document stating where you want the money to go to, means that the policy proceeds can normally be paid to the individual or individuals you want to benefit without waiting for probate and free from inheritance tax.
This can be taken out independently or in conjunction with life insurance. Critical illness cover pays out when you suffer from a critical illness. There are different definitions of what a critical illness is, so it is important to understand what cover you are buying. The critical illness cover will pay a one off payment, normally tax free if you are diagnosed with one of the specified critical illnesses. The money could then be used, for example, to help pay off a mortgage or help to make changes to your home such as installing a stair lift or modifying your bathroom. The money could also help you pay for the best treatment when you need it.
Most people come across life insurance and critical illness for the first time when they take out a mortgage.
If you have no family or dependants you may not need this type of insurance depending on what you want to happen if you die. In days gone by lenders insisted on life cover to pay off a mortgage in the event of your death. The biggest difference between mortgage protection and level term insurance is that mortgage protection cover will normally decrease in value to coincide with the amount you owe on your debt.
This is very similar to term insurance and can be provided at a low cost. Instead of paying out a lump sum it will pay out a regular amount of money, so more directly replacing lost income. For some families this is a better arrangement.
Before taking out income protection you should consider how long your employer will pay you if you became ill or injured and were unable to work. The sooner you need the cover the more expensive it will be. You may be able to lower the cost if you have savings.
Income Protection cover normally pays you a monthly benefit if you become unable to work due to illness or injury and suffer a loss of earnings as a result.
Protection policies often cost a lot less than you may think. If you want to consider how much cover you need and over what term then we can advise you. The advice will depend upon your own circumstances and also your budget.
You will need to fill in an application form or proposal (often these days we do this on-line). It is very important to disclose all material facts if you want to make sure that the life insurance company will pay out in the event of a claim. It's no good saying that you don't smoke if you do (so your life insurance costs less) only for your family to find out (should you die) it won't pay out. Depending on the amount of cover you require and also on the answers you give to the medical questionnaires the insurer may write to your doctor for a report. You may be asked to attend a medical which sometimes may lead to further medical tests.
The quote comparison will ask most of the leading providers for a quotation based on the information you provide. This will not be advice, it will give you an idea of costs and access to the illustrations and product documents. If you want to get advice or buy the product you will need to press the Request Advice button. If you prefer you can contact me directly on 01822 855555 or e-mail.
Steven Clemence APFS
Chartered Financial Planner
steven.clemence@thmarch.co.uk
Life & Critical Illness
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