Financial Resilience – Part 2: The Importance of Adequate Insurance

We tend to base our plans for the future on what we want to happen. 

But we don’t always get what we want in life. Businesses fail, accidents happen, illnesses can strike, and our financial plans come severely undone.

Bills still need to be paid and your family needs food on the table, even when money isn’t coming in. 

Simply being unable to work could put your home and your loved ones at risk. If you were to die, they’d have financial misery to compound their grief. 

This is why building financial resilience into your financial planning is essential – and why at Continuum we see adequate insurance as key to the future for our clients.

Financial resilience is the ability to deal with financial setbacks – and get your plans back on track. In an uncertain world financial resilience is vital for your own future and that of your family – and the foundation a properly thought-out financial safety net based on adequate insurance.

What is Adequate Insurance – and a financial safety net?

Everyone, and every family is different, and has different needs from their insurance protection. Cover that is adequate for a couple might be far from enough for a couple with several children and a large mortgage.

So your safety net may need to be made up of several different needs types of cover, and the level of cover provided by each one needs to be adequate for your needs.

Life insurance. This is vital, especially if you have a spouse or other dependents. If you were to die, it  could pay off the mortgage, ensuring that your loved ones can keep their home, and provide a cash lump sum to help replace your income. There are three main types:

  1. Level term life insurance – this pays out a set amount if you die during a set time.
  2. Mortgage decreasing-term life insurance – this aims to clear your mortgage. So as your mortgage debt drops with time, so does the amount it would pay out.
  3. Whole of life insurance – the policy is much more costly but can deal with inheritance tax costs.

How much cover is adequate for you? A rule of thumb is 10 times the main breadwinner’s income. This may likely be enough to pay off the mortgage and other debts and leave enough for your loved ones to live on.

Critical Illness Cover (CIC). This pays a tax-free lump sum if you are diagnosed with any of the illnesses listed in the policy, which usually include most cancers, heart attack and stroke. Like life insurance, it can be arranged at a level to pay off your mortgage and to provide a replacement income.

Again, 10 times your annual income may be necessary for adequate cover. You may be unable to work again. Dealing with the debts and providing an income will still be essential for you and your family.

Income protection insurance. There are two main types. 

The first is Permanent Health Insurance or PHI.  This pays a proportion of your salary in the event of illness or a debilitating accident that stops you working permanently and can continue until your normal retirement age. 

The other is Accident, Sickness and Unemployment (ASU) cover. This can provide a replacement income in the event of illness, accident or redundancy for a maximum of 12 or 24 months. 

How much cover is adequate? There are limits on payments – you can’t insure to have more income that you would if you were earning. The important thing is to make sure the bills would be covered, helping avoid financial worries on top of health or work issues.

See what is adequate for you?

Working out the level of cover you need can be complicated, and getting expert advice can be a big help.

By getting that help from us at Continuum, you can be certain not just of getting the level of cover that is adequate for you, you can also be certain of having the most suitable policy and price possible. We can search the entire market to find the best value providers, and we’ll always use our knowledge with your best interests at heart.

To get the financial resilience that you and your family need, call us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products, you should seek independent financial advice before embarking on any course of action.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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