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The Importance of Protection

What do we mean by protection? In a word, insurance - insuring against death, critical illness and ailments that prevent you from working.

Who does this apply to? Potentially everyone; regardless of whether you are employed, self employed or a business owner.

The starting point is to analyse the financial implications of your death, you suffering a critical illness or being unable to work due to illness or injury and establishing the cover you already have in place. If you are employed you may have a ‘death in service’ life insurance arrangement and possibly even income replacement provided by your employer, but as this is not mandatory for employers to implement many will not have done so.

For personal protection, the key financial triggers for protection are;

  1. Debt - how would you repay your mortgage, loan, credit cards or overdraft if you were unable to work? How would your family repay them on your death?
  2. Financial dependants – typically children, but it can also be a spouse/partner or elderly relative. How would they cope without your income?
  3. Future plans – University for children, travel, retirement – how would you fund these aspirations if illness or death reduces or ceases your ability to earn and save?

For business and business owners:

  1. Debt – mortgage, loan, rent, finance. How would they be repaid?
  2. Key Person – how would profits be maintained if a key employee died or was unable to work? How much does recruitment and training cost?
  3. Protecting ownership of the company. How do you ensure the owners maintain control and the deceased family get a fair value for their share of the business?

The simple answer to all of the above is that an insurance policy can provide for each scenario.

  • Life Insurance – pays a specified lump sum on the death of the insured during the term of the policy.
  • Critical Illness Insurance - pays a lump sum on the diagnosis of a specified critical illness during the term of the policy.
  • Income Replacement – pays a percentage of an individual’s earnings whilst they are unable to work.

Understanding who should own the policy, the lives to be insured, over what term and if a trust is applicable are all unique to each set of circumstances. This is the benefit of undertaking regular financial reviews with an adviser.

Protection is not a one-off arrangement as the circumstances surrounding you, your family and/or your business will change constantly – so your protection needs will also change.

Applications are medically underwritten prior to acceptance, ensuring the terms offered are unique to the individual(s) being insured. This also helps to minimise reasons for a policy not paying out, which along with cost is often cited as a reason for not insuring, but both tend to be myths.

From a cost perspective, just this week I have arranged £1m of cover for a couple in their late 20s for less than £70 per month. They may have to pay £8400 in premiums over 10 years, but in the event of death their family will receive £1m.

Don’t put off reviewing your protection. Most people insure their home, cars, pets and holidays, but how would you pay for any of these without your income?

I recently met with a client who was releasing money from a pension, but during our discussions it emerged that he had a critical illness policy on which they had not claimed when he had a heart attack two years prior. An application was made and the full £250,000 was paid out (meaning he did not yet need to touch his pension).

Protection can provide peace of mind at the most difficult of times, so if it’s time to review your arrangements please contact me on 01768 222030 or email justin.rourke@armstrongwatson.co.uk

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