Experience and statistics suggest that this time of year is a peak time for additions to the family. But first child or the latest addition they all mean greater financial responsibilities for their parents.
If as a new parent, you are in good health and enjoy a steady income you may feel confident that you are able to provide for your growing family. But the sad fact is that none of us know what is around the corner.
Which is why at Continuum, we like to help you look not just at ways to build your wealth for the future, but at ways to protect your family, whatever that future holds.
Protecting before investing?
We all want to build up our wealth, but when we have loved ones relying us, we might find that our priority is ensuring their security rather than planning investments. Fortunately, there is a range of insurance protection which can give you the peace of mind that your loved ones can remain looked after, whatever happens to you.
Life insurance is the basis of all protection plans. Various levels of cover can be provided – at its most basic, it could ensure that the mortgage could be paid off and the family home retained. By assessing your protection needs, a level of cover which aims to provide additional financial support – even a sum capable of replacing your income could be a consideration
There are several type of life insurances. Level term assurance pays out a fixed sum if you die during the term of the policy. Decreasing term assurance is designed to be linked to a repayment mortgage and pays out a decreasing sum to reflect the declining balance of the mortgage.
However, if you are thinking about a young family, the most important life assurance may be Family income benefit. This pays out a regular tax-free income from death until the end of the policy term. Policies can be arranged to run until retirement or until your youngest reaches 18 or 21 years of age.
There is also whole-of-life insurance, which has no fixed term, and pays out a lump sum whenever you die. It can be appropriate for inheritance tax (IHT) planning – where a whole-of-life policy is written in trust, the proceeds will be IHT-free and may potentially be used to mitigate an IHT liability
You may already have cover if you are an employee. Death-in-service benefits may be equivalent to two to four years’ salary – check your contract. However you need to be aware if you change employer this level of cover may be lost, if you run a business, you might want to find out about relevant life cover – a tax efficient way to provide cover to key employees and to yourself.
Life insurance can be a good starting point for the cover you and your dependents will need, but it is important to have the level of cover that is adequate – and you should also consider other protection.
Income protection, also known as Permanent Health Insurance or PHI, pays out a monthly replacement income if you are unable to work due to illness or disablement. This will be a proportion of your salary, typically this amounts to around 55% it may be possible to obtain a higher level but this will depend on the provider. Pay-outs are tax free, meaning that there may not be too much difference to your actual monthly income.
Payouts can continue until retirement, death or your return to work, however premiums to the policy normally will have to continue to be paid.
Critical illness insurance
Critical illness insurance pays out a lump sum if you are diagnosed with a serious specified condition, including heart attacks, strokes, certain cancers, multiple sclerosis and others – the actual list of conditions may vary with the provider.
Payouts can be used for any purpose. For example to pay off a mortgage and use the rest to provide an income
Private medical insurance
Private medical insurance should not be confused with Critical illness insurance. It simply pays for private medical treatment – which can often be provided faster than by the NHS. If you are self-employed or a business owner it can be crucial to getting you back to work – and earning to provide for your family – faster
What do you need?
Everyone has different insurance needs. At Continuum we can work with you to see what your family responsibilities require, and find you the most cost effective ways to provide them. We know that it pays to shop around for insurance cover, and know which providers are most likely to offer the funding you and your family must have.
Simply call us to create a bespoke protection plan for you and your family.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.