About Protection
Financial products are sometimes at their most useful when they are protecting our families,
our incomes or our property.
Whilst insuring ourselves against an undesirable event such as sickness or even death may not
be a pleasant thing to think about, the benefit of being able to set financial issues aside at emotionally difficult times cannot be overlooked.
There are many ways in which a family can protect itself, and because of the large range of products available there is usually an appropriate policy for most circumstances, and most budgets.
There are many different ways to protect your family and your standard of living when you
need it most.
Life Protection Options
There are several ways in which to protect yourself and your family from the financial impact
of an untimely death.
Most people take out life assurance to provide for their families and alleviate any financial
worries at a difficult time.
Level Term Assurance pays a lump sum in the event of death during the term of the policy.
There is no investment element within a term assurance contract so at the end of the term
there is no maturity value and life cover ends. Any death claim is paid tax-free and premiums
are usually monthly, and fixed throughout the term. Because the term and benefit are known
from the outset, and there is no investment content, term assurance can be a cost-effective method of protection.
Decreasing Term Assurance works similarly to Level Term Assurance, but the benefit is set
at outset and gradually decreases over the term of the policy. These policies can be used as
cover for a repayment mortgage, or other loans where the amount of capital outstanding
also decreases over time. Because the benefit reduces over time, the premiums are usually
lower than for Level Term Assurance.
Family Income Benefit works the same as term assurance but instead of paying a lump sum
upon death it will usually pay a regular monthly/annual tax-free income to your dependants
up until the end of the term of the policy.
Critical Illness Insurance is usually available as an addition to all term assurance plans but can
be bought on a standalone basis. Critical illness cover provides a lump sum benefit / income in
the event of diagnosis of certain critical illnesses or medical conditions, such as heart attack, stroke, transplant, blindness, total & permanent disability and so on. The illnesses covered will be specified in the policy along with any exclusions and limitations – these differ between insurers.
Income Protection
This type of policy is designed to provide an income in the event that the insured individual becomes unable to work due to ill health. The level of premium will depend upon the amount of benefit and term selected and most policies cease to pay the benefit once the insured is able to return to work. Income Protection policies are usually written to retirement age or 60 if earlier.
Accident, Sickness & Unemployment (ASU)
ASU policies were traditionally sold to accompany mortgages, allowing for a regular income to be paid to the insured should they be unable to work due to ill health, an accident or loss of their job. The product can be split down, and unemployment cover is usually the optional extra available for an additional premium. Benefits are only usually paid for a specified time, for example 12 months. It is important to compare ASU and Income Protection closely as one may be more suitable than another. It may also be possible to use the two products to work in tandem with each other.
Keyperson / Shareholder / Partnership Protection
Businesses may want to protect the key directors and employees within their firm – perhaps
the key salesperson, or the IT manager without whom the business will not function properly. Keyperson / shareholder / partnership protection can provide a fixed sum should the individual
be unable to work, or even die. The benefit will be designed to cover the firm’s expenses in meeting any emergency costs, recruiting a replacement employee and protecting the future
of the business.
If a shareholder were to pass away, the firm’s remaining shareholders or directors may want protection that enables them to purchase the deceased’s shares from their estate promptly
to maintain control of their business. The same scenario also applies to partners in a firm.