We insure a lot of things in our private lives. We have contents and travel insurance, phone and car insurance, and many cover their mortgages, but we often forget about the most valuable asset – ourselves and our future earning power.
While every family is unique, when discussing potential personal and family financial protection with prospects and Clients, our financial planners are often asked “What would you do?”.
In this article, Finura Chartered Financial Planner, Tom Buss, talks us through how he chooses to protect himself and his family.
When striking up a conversation with new or existing clients regarding protection, I always start by describing my current situation. As it stands:
I then move on to highlight what I consider to be the key financial risks to my family. The top 5 for me are:
Below is how I cover each of these eventualities and, for a Client in a similar position, the advice I would most probably give:
If I died, my partner wouldn’t be able to afford the mortgage on her sole income. We have therefore taken out Decreasing Term Life Assurance for the full amount of the remaining mortgage. The term is set in line with my mortgage’s maturity date.
With the mortgage paid, this would reduce the household expenses significantly. However, my children still need to be brought up and, with potential school fees to consider, I have covered this with an additional Family Income Benefit policy. This type of cover is very cost-effective; it pays a tax-free income to my partner should I die and will pay it until my youngest child is age 21. The premium is very reasonable as, from an insurer’s perspective, the potential cumulative pay outs get smaller as the risk (my age) gets greater.
My partner has a death in service scheme with her employer, however, should she die prematurely, this is insufficient to repay our mortgage and meet my needs. We have therefore also taken out a Decreasing Term Life Assurance policy for the same mortgage repayment purpose.
Again, Family Income Benefit is in place to cover her lost income to our household until our youngest is age 21.
Often the most overlooked (possibly because of the perceived cost/value), my ability to earn and bring money into the household is my most valuable asset. I insure my car, my house, my travel etc, so surely my INCOME should be insured too? I cover this risk with a comprehensive Income Protection (IP) policy, which will pay me a tax-free income if I am assessed as being unable to perform my current job (not just any job) until my planned retirement age.
Unlike a more commonly known Critical Illness policy, IP does not have a list of definitions and pays an inflation-proof long-term replacement income until I am able to return to work or my retirement age. I also have a relatively small amount of Critical Illness which pays a lump sum to cover any lifestyle changes.
My partner is a member of a comprehensive Group Income Protection policy through her employer so a policy for her would be a waste of money. However, we have also taken out a little Critical Illness to cover potential lifestyle change.
The main reason I chose to take out the Critical Illness for my partner and I is that our policy offers Children’s Critical Illness cover at no extra cost. Heaven forbid it were to happen, if one of my children were taken seriously ill, we would receive a decent cash sum to allow us to take time off work, potentially make alternations to the home and generally mean our finances are one less thing to worry about.
If you or your family need any kind of financial protection advice, please contact us here and one of our planners will be happy to help.
Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.
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