Have you ever thought about how your family would cope financially if you died or became too ill to work? Death and illness aren’t pleasant subjects, but it’s extremely important to protect yourself and your loved ones from the devastating financial hardship they can cause.
Many of us are guilty of adopting the ‘it won’t happen to me’ attitude, however, illness is a part of life. In the UK, someone is diagnosed with cancer every two minutes, and another person dies from heart and circulatory diseases every three minutes.
It makes for grim reading but sticking your head in the sand isn’t the answer. If you’re the household’s main breadwinner, your illness or death could result in your loved ones being forced to sell the family home.
Fortunately, there are things you can do to minimise the financial impact of illness and death. By planning ahead, you can give yourself the peace of mind that your loved ones will be protected should the worst happen.
Here are four ways to protect yourself from the unexpected.
1. Take out life insurance
Life insurance pays your dependants a lump sum of money if you die unexpectedly. If you have a partner and/or children who rely on your income to pay the mortgage and other bills, life insurance is an essential safety net.
Most life insurance policies are ‘term’ life insurance, which means they provide cover for a set length of time. Often, this period will match the length of your mortgage. Homeowners typically choose ‘decreasing’ term life cover, whereby the payout reduces each year to reflect the fact your mortgage is also reducing as you make repayments.
In general, life insurance isn’t expensive, although your premiums will depend on your age, how much cover you take out, and your health and lifestyle.
It’s really important to make sure you take out enough life insurance, so your family doesn’t encounter a shortfall. We can advise on the most appropriate cover for your needs and circumstances.
2. Add critical illness cover
Critical illness cover pays you a lump sum if you’re diagnosed with a serious illness, like cancer, heart attack, stroke, or multiple sclerosis.
A serious illness could have a major impact on your finances. Research by Macmillan shows 83% of cancer patients suffer financially and are, on average, £570 a month worse off.
Critical illness cover can provide you with the peace of mind that you’ll be financially supported if you’re seriously ill. You could use the payout to cover mortgage repayments, other bills, or important medical treatment.
The number and severity of illnesses covered by critical illness insurance vary from one provider to another, which makes comparing policies difficult. It’s vital to check the terms and conditions to make sure it meets your needs.
It’s also extremely important to be accurate and honest about your medical history when applying for critical illness cover. If you don’t disclose everything accurately, the insurer could refuse to pay your claim.
We can help you decide whether you should take out critical illness cover, explain what is and isn’t covered, and search the market for the right cover for you.
3. Consider income protection
The third main type of protection insurance is income protection. This provides a monthly payout if you’re unable to work and lose your income because of illness or injury.
If you’re self-employed or your employer doesn’t provide enough sick pay, income protection can ensure you’re still able to pay the bills. Research by Scottish Widows suggests a fifth of British adults wouldn’t survive financially if they lost their income because of long-term illness.
Income protection covers both physical and mental health conditions, and you can typically claim multiple times.
Usually, income protection has a ‘deferred period’, which is the length of time you need to wait before it starts making payouts. The longer the deferred period, the lower your premiums. Once the insurance starts paying out, it will continue to provide a monthly sum until you’re able to work again or retire.
4. Make a will
Every adult should have a will, however, research by Royal London shows less than three fifths actually do. If you don’t have a will, you run the risk of ‘dying intestate’ – when the law decides how your money, possessions and property are passed on. This won’t necessarily match your wishes.
There’s lots of extra admin if you die without a will, so even if your assets do go to the right people, they could wait a long time for their inheritance and struggle to pay funeral costs.
Another risk is your family could end up with an avoidable Inheritance Tax (IHT) bill. Intestacy law dictates that if you’re married with children, your spouse will receive everything up to the value of £250,000 and half the remainder. The other half of the remainder is split between your children who, unlike your spouse, aren’t exempt from paying IHT.
Making a will is a simple process that has a lot of benefits:
- Your assets go to the people you wish them to
- Your loved ones inherit your assets more quickly
- IHT may be avoidable
- You can name a guardian for your children.
By drawing up a will, you can rest safe in the knowledge that your loved ones will be taken care of.
Get in touch
If you want to have a chat about protection, wills or your wider finances, please get in touch by emailing office@verve-financial.com or calling 0330 320 5048.
Please note
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
