Protection planning for peace of mind
It’s easy to underestimate our own value. We insure our homes, cars, valuables and pets, but often we forget about life protection, insuring the income that provides all of the above.
What would happen if you were to fall ill, or worse? You’ll want to make sure your loved ones are protected. Planning for your family’s future can bring peace of mind that they will be financially stable and their standard of life secured.
Protection planning can involve looking at life protection, critical illness cover and income protection. An independent financial adviser at AFH can discuss with you the solutions most relevant for your specific needs, and search the whole of the market to find the best possible offers.
Taking out a life protection policy can put financial provision in place for your family in the event of your death. Policies need to match your specific circumstances, which means it’s crucial to choose the right term and sum to insure. The cost can vary between providers and change regularly, so it’s worth looking around to find the one that best suits your needs.
Term assurance may be suitable if you only need cover for a certain period of time, perhaps until your children have moved out, or the mortgage has been paid off.
You decide on how long you want the policy to last for. If you die during this time, it pays a tax-free cash lump sum to your loved ones. However, if you live beyond the end of the term, your plan will have no cash value. There are different types of term insurance available;
Relevant life insurance (Business only)
This is a life insurance policy taken out on your behalf by your employer to provide cover up until your 75th birthday, as a maximum. The premiums are tax-efficient to both the employer and employee, and can be a good alternative to death in service benefits, especially for smaller companies. The benefits are paid out in a tax-free lump sum, with no limits on the amounts that can be insured. Conditions will need to be met to qualify as relevant life with HM Revenue & Customs (HMRC) in order for the appropriate tax benefits to apply. Our experienced financial advisers at AFH will be able to discuss this with you further.
Writing a policy in trust
Putting the benefits paid on death into a suitable trust can be a very useful way of ensuring they are passed on to the intended beneficiaries at the right time. The pay-out also won’t form a part of your estate when considering any inheritance tax liabilities.
While the proceeds of a life insurance policy won’t usually attract income or capital gains tax, under normal circumstances, it will form part of your estate, and may therefore be subject to inheritance tax.
Putting an insurance policy in trust at outset means the proceeds will be paid directly to your beneficiaries in the event of your death, rather than to your legal estate, and will not be taken into account when inheritance tax is calculated.
The thought of becoming ill is an unpleasant one, but it’s important to consider when planning for the future. If you suffer a critical illness and survive, will your family still be able to afford the cost of living?
In addition, you want to feel free to have as much time as you need to recover from your illness, which is often not the case with the financial pressures that loss of income can bring.
Critical illness cover is a type of insurance policy that pays out a tax-free lump sum in the event that you are diagnosed with a specific illness or medical condition during the term of the policy. Factors that will affect the cost of critical illness cover will include the sum insured, your age and medical history.
If you find yourself unable to work, how long could you and your family survive on your savings or sick pay from work?
Permanent health insurance is a long-term policy that is designed to pay a regular income should you develop an illness or injury that prevents you from earning. It will continue to pay-out until you are able to return to work, retire, or until the policy ends.