Occasionally taking a step back to review your finances to check to see if you are for example, paying too much tax or if your affairs could be structured more efficiently can be very rewarding. A financial review will encourage you to formulate some objectives and then determine the best way of achieving them.
“Planning is bringing the future into the present so that you can do something about it now”
– Alan Lakein
It is important to formulate an integrated financial plan, which will involve considering different aspects of your present and future financial needs and aspirations. This is likely to include reviewing aspects of your finances such as, pensions, investments, inheritance tax planning, any debts you may have and provision for family and personal protection (see below).
Life Assurance/Critical Illness Cover
Life Assurance cover pays a lump sum on the death of the life assured and critical Illness cover similarly pays a lump sum in the event of a serious illness as defined by the policy. Life Assurance is generally used to provide for someone who is financially dependent upon you. Critical illness cover is used to provide for you and your family. There are a number situations where life/critical illness insurance would be useful:
- To repay the mortgage or any business debts.
- To provide for your family if you normally provide the income.
- To pay an Inheritance Tax Bill so that more can be passed on to your heirs
- To provide cover for business partners or to ensure that the business does not get into difficulty if a key person dies.
Unless some circumstance is specifically excluded (which is rare nowadays), once the life assurance is in force, cover is provided worldwide without restriction, though when you initially fill in the form you will be asked to disclose if you plan to go anywhere where there may be safety issues or if you have any health problems or if there are hazardous aspects of your job or leisure pursuits.
Many people receive life assurance cover through their employer’s pension scheme and when we assess your life insurance cover needs, we will take into account any lump sum and pension benefits which would be paid by your employer, together with any existing policies you may have.
It is important to have your position assessed even if you do have life assurance cover through your employer, to ensure that it is sufficient.
Types of Cover
There are really only two main categories of life assurance/critical illness cover, and most policies are simply variations of these.
1. Whole Of Life
This type of policy provides cover for as long as you live, provided you keep up the premiums. Some whole of life policies will regularly review the level of cover they provide, because the cost of cover becomes more expensive as you get older. Others have a fixed premium no matter how long you survive.
A whole of life policy may also have a surrender value so you can get some of the money back you have paid in premiums if you decide you no longer need the cover.
2. Term Assurance
This is the cheapest form of life/critical illness insurance. It is for a fixed length of time and most commonly for a fixed monthly or annual cost. It does not have a surrender value and you can cancel it at any time without penalty.
Low-cost endowments for example, are really a combination of an investment policy and a term assurance policy that makes up the difference between the value of the underlying investment and the amount of cover required. (see special notes re endowments below)
Term assurance comes in various guises for particular purposes. For example, if you have a capital repayment mortgage where you gradually reduce the amount of debt, a “mortgage protection policy” is likely to be most suitable. This is simply a life assurance policy where the cover reduces in line with the debt outstanding.
Another interesting variation, that in my view is too seldom used but which can result in a significant saving in the cost of providing cover for a family, is a “Family Income Benefit” policy.
Family Income Benefit provides life insurance cover in the form of income payable in the event of death. For example if I knew that my children would have finished their education and be able to fend for themselves in 18 years time, I might take out a family income benefit policy that paid say £20,000 pa. increasing in line with the Retail Prices Index for 18 years. If I then died at the end of the fifth year my family would receive £20,000 p.a. plus inflation for the remaining 13 years.
The excellent feature of family income benefit is that it can be built to exactly match your needs and is often much cheaper than normal level term assurance.
We will ensure that we guide you to the most appropriate cover for you to ensure that those who are left behind are provided for.
Special note : Endowments
A Low Cost Endowment is a combination of a savings plan (the endowment) and a life assurance policy which makes up the total amount payable on death to the “target amount”.
In many cases the target amount is the amount of the original mortgage The Low Cost Endowment was designed to repay. Often a higher growth rate had been assumed for the future than actually materialised and so the savings element is unlikely to reach the target amount. If this is the case then you should seek advice as to what you should do about the expected shortfall as soon as possible.