Have you ever thought about the possibility of not being able to work due to [...]
Grandparents and financial protectionCreated by Charlotte in Insurance
An important area for grandparents to consider in relation to themselves and their wider families is the question of financial protection.
This may seem slightly curious in that the need for financial protection is most commonly assumed to be at the younger end of the life cycle when perhaps individuals have bigger financial liabilities such as mortgages or young families.
However, sale sale it is important for everyone to reflect on what effect a serious illness, healing death or disability could have on their and their family’s life and standard of living and try to plan how to overcome that should the worst happen. For example if you died or suffered a serious illness would your dependants be able to stay in the family home if you were no longer able to meet the mortgage payments? Would your family be able to meet all the household bills? Would you be able to afford to make the necessary adaptations to your home if you suffered a critical illness?
Three out of four people admitted that they are not adequately protected should they lose their main income (Brahm Research March 2006) and if you are in this category you could be leaving your family or dependants with a legacy of financial hardship. There are many ways to prepare for the future but thinking ‘ it will never happen to me’ is not one of them. Statistics show that everyone is vulnerable when it comes to a critical illness such as cancer or a heart attack.
You cannot prevent the unexpected from happening but you can try to help make sure that your family survive it through adequate protection.
What is financial protection?
There are three primary types of protection:
- Life insurance
- Critical illness protection
- Income replacement
These types of plans provide a lump sum on death and come in two forms: term and whole of life. Term plans provide cover for a specified period of time whereas whole of life plans provide cover for as long as you keep up your premium payments. Term plans are typically used when covering a financial liability which will reduce or end in the future , cheap for example to protect the repayment of a mortgage or to support your children. Whole of life plans are designed to cover liabilities which will arise on your death such as an inheritance tax bill or to supplement what you leave to your heirs. These types of plans have been discussed in the earlier article on inheritance tax.
Critical illness protection
These types of plan provide a lump sum in the event that you are diagnosed with a serious illness and can be structured on either a term basis or whole of life basis. Given that we are statistically four times more likely to suffer a serious illness than to die before we retire it is an valuable part of protection planning.
These types of plan are designed to provide you with an income should you be unable to work for a prolonged period because of illness or injury. If your income earning potential is important to your family’s wellbeing and you have no access, for example, to sick pay schemes through employment then this could be a valuable asset to protect. These are normally term plans in that they will cover you for a number of years (usually until retirement) and, in the event of a qualifying claim the proceeds are paid to you until you are able to return to work. There is normally a deferred period before payments begin.
In the case of life policies it is also worth remembering that there are benefits to arranging for any lump sum payable to be paid into a suitable trust. This could help protect the capital in the future by taking the sum out of your estate and could help avoid the normal delays associated with Probate allowing your heirs to receive payment quickly.
by Kevin Nelson of St. James’s Place Wealth Management
This article attempts to summarise some of the options open to parents/grandparents and has been written by Kevin Nelson of St. James’s Place Wealth Management – he will be happy to answer any questions you may have and can be contacted at St. James’s Place Wealth Management , Chancellor Court, The Calls, Leeds LS2 7EH or on email at firstname.lastname@example.org or call on 07767 658 850. www.sjpp.co.uk/kevinnelson