In the latest series of articles at Plan with Neil, enjoy a simple, jargon free guide to Protection cover. The articles include an introduction to the four main Protection policies under this umbrella. These are Life insurance, Family Income Benefit, Critical Illness Cover, and Income Protection. These will provide guidance on insuring yourself, your loved ones and your assets in the event of death and life changing circumstances regarding your finances.
What is Protection in terms of my finances?
Protection regarding your finances, is when you may begin to ask yourself
- What would happen to my loved ones and assets if something were to happen to me?
- What if I was to become unwell, or in the event of my death?
It can be a little overwhelming knowing where to start to cover yourself and know what your options are regarding Protection cover. A good place to begin is to look at your personal circumstances and future plans.
You may have a family who you support, or wonder what would happen if you were to become unwell and unable to go to work and receive your salary.
Why do I need to consider Protection Cover?
By taking out the right Protection cover, you can gain peace of mind and clarity in the case of illness or death- for yourself, your family and beneficiaries. It is important to have confirmation that in the event of these circumstances your salary is protected and your financial commitments covered, whether this be a mortgage or your monthly outgoings such as council tax and utility bills.
Here at Plan with Neil an introduction to the four key policies and information on how to plan your Protection cover is provided.
The good news: Protection prices and policies are competitive in the United Kingdom
A key positive factor regarding Protection Cover is that within the United Kingdom, you have a vast range of insurance policies and providers. This means your prices are very competitive, allowing you to build a cover plan for relatively low costs and at a budget, which suits you.
“This is a factor across all of the policies in the UK, we are very lucky in that we have a large number of insurance providers. That means generally the prices are fairly competitive” Neil Young
The policies work towards your personal objectives and financial peace of mind. You can find good monthly rates, with the competition reducing policy prices, compared to living in a country that only has a small number of insurers.
What are the Protection policies available to me?
In this article, the four types of policies discussed are
- Life Insurance (the most taken out and significant of type of cover)
- Critical Illness Cover
- Family Income Benefit Cover
- Income Protection.
What is Life Insurance?
When it comes to Protection, Life Insurance is the first and foremost commonly taken out policy in terms of Protection.
In plain terms, you would ask yourself, what would happen in the event of my death? With a Life Insurance policy, if you were to die during the period of the cover then the insurance company will pay an amount to your family and/or your beneficiaries.
You will receive a Life Insurance payment in a lump sum in the event of your death. It is designed to cover and pay off larger areas of your assets, such as your mortgage. Therefore depending on your policy, you can expect your insurance provider to then pay out a lump sum, for example, £100,000.
Your Life Insurance Policy can decrease over time as the policy you choose moves forward in conjunction with the years in which you did not claim the policy, and your mortgage payments or other assets decrease in the amount to pay off. For example, over a 25-year period, the money would decrease in conjunction to the amount of money owed on the mortgage
However, you may choose to keep the level of cover the same over time. This means that it wouldn’t decrease over time, but will also mean the premiums ( how much you pay) will be higher as your cover is higher . This is often useful if you have an interest only mortgage.
Key points to consider regarding Life Insurance:
- It is the most common and ‘main’ form of Protection insurance
- It is paid out to family and / or beneficiaries in the event of your death
- Life Insurance is paid out in a lump sum in the event of your death in order to cover commitments such as your mortgage payment.
- It can decrease in conjunction with the years on the policy, as does the payment, as larger payments are paid off. Alternatively, it can be kept at the same level of cover over the years
- Within the UK, we are lucky to have an abundance of insurance policy companies. With Life Insurance being the most commonly taken out insurance, prices are very competitive and you will likely find a suitable policy at a relatively low cost.
Family Income Benefit
What is Family Income Benefit?
Family Income Benefit is often seen as another form of a Life Insurance policy – it will be paid out in the event of death. The key difference of Family Income Benefit however is that a policy is paid out monthly. Take a look at the below scenario;
A husband has died; the life insurance comes out and pays off the mortgage. However, the family still have monthly bills, utility and maintenance costs. This is where Family Income Benefit comes in – it allows for a manageable and tangible way of maintaining living costs – and can often be set up alongside Life Insurance.
Family Income Benefit can therefore reduce stress in a time of grief. Rather than receiving a lump sum of cash to manage, monthly outgoings can be taken care of with the regular, smaller payments.
You Family Income Benefit also decreases in price with time; for example, if you were to take out a twenty-year policy and were to die after fifteen years, your policy would pay out for five years of cover and protection.
Key points to consider regarding Family Income Benefit:
- Family Income Benefit is essentially another form of Life Insurance Policy, paid out in the event of a sole Providers death. It differs from Life Insurance by being received in monthly installments.
- It will cover the basic costs a family may incur. These could be utility bills, council tax and other monthly costs a family can incur
- Family Income Benefit can be alongside Life Insurance Cover, however a monthly payment can reduce stress in a time of grief, as it is paid out in manageable sums.
Critical Illness Cover
What is Critical Illness Cover?
A Critical Illness cover policy is designed to protect finances in the event of a severe, life changing health condition. Examples of Critical Illnesses covered in these policies include a major heart attack or cancer. Therefore, if you were unable to work for a long period of time, your critical illness cover would pay out a lump sum, for example potentially two years’ worth of salary, or perhaps 1 year of expenditure.
Similarily to Life Insurance, your Critical Illness Cover pays out in a lump sum; dependent on the policy you choose, this could be paid out the event of your critical illness such as Cancer or a heart attack.
There are however, two notable criticisms regarding Critical Illness cover to consider before planning your policy.
1) Again, a large sum of money can actually add to the stress in the period of time you are critically unwell. If you are going through the trauma of a critical illness, a lump sum of money may be a further added pressure in regards to managing your finances at a time of high stress regarding a health crisis.
2) With Critical Illness cover, there is an exhaustive list of illnesses. However, it is not absolute in term of the illnesses that come under the critical illness policies. Therefore- you may get ill, unable to go to work and receive salary but still not be covered by the critical illness policy alone.
The solution to both of these issues is not to bury your head in the sand, but to consider Income Protection either instead of, or alongside a critical illness policy.
Key points to consider regarding Critical Illness Cover:
- -Critical Illness Cover is similar to Life Insurance in that it pays in a lump sum in the event of a long-term need to cover salary and expenditures.
- You are more likely to make a claim on Critical illness than life insurance which means that it is more expensive, however you may choose to get a lower level of cover on Critical Illness to reduce the price.
- Although beneficial, the lump sum payment that Critical Illness Cover offers may not necessarily be ideal in circumstances dealing with finances whilst having critical health issues.
- Critical Illness Cover covers a list of illnesses, where you are likely to take a lengthy, extensive period off work to recover. However, if your illness is not on the list, your Critical Illness policy will not cover your payout and cover your financial needs at a time of ill health.
What is Income Protection?
Income Protection is a policy that is taken out to protect you if you are unable to work for any reason not just Critical Illnesses. There could be an event or circumstance such as a back problem, or a non-critical condition might cause you to stop employment and in which case you will still need financial income. Your Income Protection Policy will pay out in this case.
Similar to Family Income Benefit, you receive Income Protection monthly, making it easier to manage any outgoings and utilities. Income Protection is more likely to happen alongside sick pay, therefore the type and length your Income Protection policy can vary and work around your personal financial circumstance.
An Income Protection policy is available until you are of retirement age, or you may choose a smaller payment length for example, two or five years. Your employment and sick pay terms will also be a factor into what policy to choose, as well as your personal savings and financial commitments.
“Different employers will have different sick pay periods. And you might have different savings to cover you, so you can set up the policy and tailor it to cover your individual needs. All these factors are taken into account regarding Income Protection cover.”
Key points to consider regarding Income Protection:
- Income Protection cover can cover lengthy periods of time out of work due to reasons other than a critical illness.
- Income Protection, like Family Income Benefit is paid out monthly, making it a more manageable sum of money to cover costs whilst out of work.
- Your policy will depend on your personal sick pay arrangement in employment as well as savings, as you can decide to claim your Income Protection at different times regarding your time out of work i.e. two weeks into your sick pay arrangement
In this series of articles, the four main insurance policies to consider regarding Protection Cover for your assets and ensuring peace of mind are Life Insurance, Critical Illness Cover, Family Income Benefit and Income Protection.
Here are the overall key takeaways to remember when considering your Protection plan:
- In the United Kingdom, we have a vast number of Protection plans and insurance providers. Therefore, prices are very competitive. Because there are so many you can get a very good monthly rate with the competition reducing the price of decent policies. The competition also provides a flexibility in the policy plan you desire, tailoring to your personal and financial circumstance and insurance budget.
- It is important to understand how you would want your policy to pay out and what it is you need covering. A lump sum of money can cover your mortgage in the event of your death, but could add to stress in times of grief, illness and emotional stress. Therefore, policies such as Family Income Benefit and Income Protection that pay out monthly sums are designed to cover regular bills and to take that potential burden away of a large lump sum of money to manage.
- Your Protection plan will be based on your personal circumstance. Whether you are the sole provider of a family, have beneficiaries or want to cover yourself in the case of a serious health condition, understanding the four main policies covered here can help you design your cover for yourself and your loved ones in the event of your death.
How can I take out Protection cover?
Now you have information on the four key policies to consider, you can start with thinking of the kind of cover you want and what type of budget you would want to commit to Protection policies. The key question is what cover is best suited for my personal circumstance?
Once you have an idea of the policies that will suit you, you can have a look online at local insurance providers and hit the comparison sites such as money saving expert to see what is available to you.
Alternatively, speaking to a financial advisor at this stage will also provide you with professional guidance on Protection plans, to help you create the best policy plan and the right balance of cover and protection for yourself, loved ones and your beneficiaries, whatever your current circumstance may be. Plan with Neil, is able to provide all of these services for you.
At Plan with Neil, your financial wellbeing is the number one priority. The aim of the service is to deliver peace of mind by providing you, the client, with the options and flexibility needed for you to be financially secure and feel you can achieve your longer-term goals and financial ambitions