By Paul Chase, Director

Quick answer, REALLY IMPORTANT!

If you have not yet arranged suitable life and health cover for you and your family (and we are not just talking about a policy that clears the mortgage or Death in Service through work – more about those later) then we would recommend prioritising life assurance before you look at your pension or investments or even your savings.  After all, if you die or suffer an illness that prevents you from working, you cannot save!

Financial Planning – Life Assurance, Critical Illness Cover and Income Protection are the absolute cornerstone of financial planning, and it is such an essential subject to consider when looking at your financial health.

I have written a series of articles that will be published over the next 4 weeks that will explain why it is so crucial.  We will cover the different types of cover you may not have considered like children’s cover, an add on feature that is a game changer that only costs a small amount per month and hopefully inspire you, if you have not already, to focus on setting up a policy to cover you and yours as soon as possible.

Even if you do have a good policy in place already, it is always worth reviewing and updating it as you go through life.  Not only are companies adding more and more features (bells and whistles) to their plans each year in a bid to get you to select their offering, but your circumstances can also change and whether it is the patter of tiny feet or buying into a business, you may need to change your protection as your life changes.

You are not getting any younger.

People tend to think they do not need to arrange life or health cover until they have racked up some liabilities like a mortgage, a family, or a business but it is a fact that the younger and healthier you are then the cheaper the life cover (and definitely) critical illness cover will cost you.  That is not to say that if you are, like me no longer a spring chicken, you ignore the need for cover or assume it will be too expensive. Remember it would be more expensive for your family if you don’t have any cover and something happens to you.

Clients often explain that they are putting it off for now and that they will get around to it eventually, that it is not a priority right now. Well statistics show that in 2021 the average age of a person claiming on income protection was 44 years old*.

Make sure you have adequate cover before it is too late!

The other reason we hear from clients all the time is that “it won’t happen to me” and “I am young and healthy”.  Even more reason I say to get a substantial life and health policy in place now whilst you are fit and healthy.  The latest figures from Cancer Research UK** shows that now, 1 in 2 UK people will suffer from cancer within their lifetime.

It is a lot easier to take out a big but cheap policy as soon as possible, even if you have to top it up or take out a new policy to subsidise your life changes, it’s so much easier in terms of underwriting. You can set the premiums that can be payable for the rest of the policy and depending on your age, that could be 50 years of cover. That way when you do start collecting liabilities, you have a sizable, robust policy in place, and you are already used to paying the premiums which can be factored into the affordability assessment when it comes to a mortgage or your budget for a lifestyle plan.

As an example, and to demonstrate how reasonable life cover can be, we have produced quotations for a 30-year-old woman for £500,000 of level life cover with a 50-year term taking her to age 80. The monthly premium would be £40.48***.  That is just £10.12 per week (3 coffees?) for half a million of cover for the next 50 years.  If we were to take her to age 70, the premium drops to £25.48*** per month or just £6.37 per week for £500,000 of cover for 40 years. Level life cover is cheap. I would strongly advise you to arrange it now before it costs you more.  Critical Illness cover is more expensive, but the simple truth is, it is more expensive because it happens to more people, which for me is even more reason to ensure you have at least some elements of this valuable cover.

Death in Service – Don’t rely on it.

Some clients tell us that their life cover is taken care of through Death in Service provided by their employment when they see us about mortgages or reviewing their financial planning.  Death in Service is usually 4 times your salary, although some employers do offer more.  My question to them is, “OK, so for 4 years your significant other and your children have the equivalent of your income to keep life going, but what happens after the 4 years? Do they just stop living or cease needing income?” Of course not and that is where family protection comes in.  It helps when you have the knowledge and comfort that you have provided for your family even if you are not around anymore.

Death in Service is a great benefit when it is offered.  However, picture the scenario. You are working for a company that offers Death in Service cover which you are relying on for your family should the worst happen, maybe you have earmarked it to cover the mortgage.  Suddenly you become ill, are unable to work and are going to be off for some time.  Your employer may well provide sick pay for a period of months (do you know how long or if they do at all?) but what happens then?  Unless they have some form of income protection or keyperson cover that will replace your income, they are going to have to stop paying you at some point, make you redundant and your cover disappears with your role.  So, now you have suffered a serious illness, you are unemployed and given your health, you are unable to replace your life cover or if you can it is very expensive and limited.

It is much better to see Death in Service Cover as a nice employee benefit and a bit of a bonus to boost your protection portfolio, but don’t rely on it. Make sure you have your own cover in place that nobody can take away from you.  That is true financial health.

Saving for your retirement?

We always hear Financial Advisers encouraging their clients to save for their retirement and rightly so, it is another crucial area of financial planning – “Save as much as you can as early as you can”.  But what happens if you don’t get to retirement and die beforehand but have a limited pension pot as your saving was cut short.  Your family would get what you saved but if you died only a few years into saving, it would not amount to much.

What if you do get to retirement age but you suffer a critical illness or serious accident on the way?  Will you still be able to pay the monthly contributions if you are unable to work?  Would it not be a better idea to pay 90% of your contribution into your pension and use that other 10% to take out a policy that would mean if you were unable to work, your income would be replaced, which would allow you to continue to make payments into your pension?

It is a lower priority expending time and energy setting up a pension if you do not already have a life and health policy in place to ensure that you can either carry on contributing if your income stops due to illness or accident or that your family receive a lump sum alongside whatever you have saved, should you pass away.

What type of cover is right for me?

As I have touched upon in this article there are various types of life and health cover available.

• A Level Term policy will pay out a lump sum should you die and only lasts for a set term.
• A Whole of Life policy will cover you for the rest of your life regardless of when you die as long as you maintain the premiums
• A Mortgage Protection policy provides a decreasing sum assured which can mirror a repayment mortgage but should not be relied upon for family protection.
• With a Critical Illness policy, you have options. You would receive a lump sum payment. Be it putting an amount aside for your future, clearing debts/mortgage or paying for private treatment to get you better and back to work more quickly, so you can start saving again. Without it your options are limited, with it you get choice and the ability to live at your own pace when you most need to.
• Income Protection can replace a percentage of your income if you are unable to work due to an accident or sickness after a set deferred period and can continue to pay you right up until retirement or for shorter benefit period (depending on the type of cover that suits you). Again, this type of cover gives you room to breathe when life’s challenges arise.

There is no right answer or one size fits all but there is a significant need to ensure you have adequate cover before you start looking at the other areas of financial planning.

For a no obligation chat about what sort of life cover you need to protect yourself and your family please do get in touch.  We can easily provide you with a range of quotations and build a portfolio of cover to suit you and your budget providing you with an enormous sense of peace and security, that should the worst happen, those you care about most are looked after or if illness strikes you have time and options to allow you to get better and to get back on track of living your best life. Life cover starts from just £5.00 per month so is it not better to have some cover than none at all?

My next article will be covering how we can further protect our families and take advantage of a feature that applies to adult critical illness cover meaning that you can cover your children for multiple and significant amounts of health protection just by setting up your own policy in a particular way and it really does not have to be expensive.

I would be delighted to answer any queries you have on the subjects discussed in this article or any area of life and health protection, please do get in touch.  Make life and health cover your financial health priority today!

Chase Financial Services Limited trading as Financial Options and Chase Wealth Solutions is licensed by the Isle of Man Financial Services Authority

Sources:

*Aviva Individual Claims Report 2022

**Cancer Research UK

*** Exweb Life Protection – Quotes Correct as on 07/06/2022