Tony Granger illustrates the importance of keeping families protected.
The benefits of family protection far outweigh the costs. Having advised families for over thirty years on the benefits of protection in the event of death, serious illness or injury where you cannot work and earn an income, or a critical illness that may incapacitate you, it is important to highlight why personal protection insurance cover is so vital. It provides much needed money at the time when it is needed the most.
Whilst family protection is the key issue, the family also needs to be protected if a business fails. Whilst the cost of life assurance has decreased over the past ten years generally, with the EU age equalisation directive, cover for females has increased to equal that for men, whereas in the past it was considerably cheaper.
One must always weigh the potential benefit against the cost. Most people insure their physical assets, such as the home and household contents, but considerably fewer insure themselves to provide for their loved ones.
Case study – Paul and Sheila
I met Paul and Sheila two and a half years ago to advise on school fees planning. At the time, he was 39, she was 42 and they had two minor children age 3 and 6. Paul sadly died in February 2014 from cancer behind the eye that spread to his brain. They had a mortgage of £150,000, and each had taken out a life policy when they married for £10,000 sum assured, which was their only cover. Both worked in their fledgling business producing travel publications, and it was growing, with new employees being taken on.
I persuaded them to each take out a term life policy to age 65 for £350,000 (to cover the mortgage and to provide income for the family on death), critical illness cover for £50,000 each and income protection for Paul, so that an income would be paid if he was ill and could not work. They did what they could afford at the time. Money was tight with a growing business. When Paul was first diagnosed with cancer, the critical illness policy paid out a lump sum of £50,000 which helped to adapt the home and cover medical and other expenses as his earnings dropped. The income protection policy paid a monthly income amount to cover the mortgage payments and to protect the roof over their heads.
When his diagnosis became terminal, with less than a year to live, the life office paid out the sum assured of £350,000 whilst he was still alive, as a terminal illness benefit. This paid off the mortgage and put money in the bank for Sheila and the children. Paul had the comfort of knowing that the house was paid for and the family provided for before he died. Had they not taken these measures, the home could have been lost, the family split up or living on charity and under immense financial stress. All of this protection - for around £150 per month for both of them.
Life assurance
One can have term cover (for a set term, say ten years) or whole of life. Premiums and sum assured can be guaranteed. Ideally, life assurance should
cover the most vulnerable period (minor children through to adulthood for example), but whole of life does just that – it pays out an amount insured for on your death whenever that occurs.
You would cover your long-term liabilities, such as the mortgage, or a period of school and university fees, or the economic value of losing a spouse – replacing their income or value on death. Add ‘waiver of premium’ benefit if you can. If you are seriously ill and cannot work, the life office pays the premium for you to maintain your life cover. Write the policy into trust, so as not to pay IHT on the proceeds.
Income protection
Also known as permanent health insurance (PHI), this cover provides an income for a set term or to retirement age, should you become seriously ill or injured and cannot work. It replaces up to a maximum of two-thirds of your salary or drawings, and can even pay your pension contributions. Many employers have a very limited income payment policy if you are off ill, and this type of cover is essential, giving you an income to pay the mortgage and buy food.
Critical illness cover
This pays out an income or a lump sum on diagnosis of a serious or critical illness, such as cancer, paraplegia, brain tumour, stroke and other dreaded diseases. Children are also covered at no cost on the parent’s policy. You can have a critical illness and still work, so income protection may not cover you – until you are fully incapacitated – but the critical illness policy does.
Practical Tip:
Every family requires adequate protection – make sure you cover all of the bases by having a protection review done for you by your financial adviser.
