Protection

There are many reasons why people need financial protection to help with the set backs that life can bring and we are often asked questions about the different types that are available. The aim of this section is to highlight the different circumstances where protection may be needed and to briefly explain the principal types of cover. This is by no means comprehensive but we can give you further details when discussing your individual requirements.

Life cover

This is particularly important where there is a dependent family or spouse. The death of a breadwinner and loss of their income could have serious financial consequences. There are numerous costs in running a household - the mortgage and maybe other loans, utility bills, housekeeping, the cost of bringing up the children, school and further education costs, etc.

Term assurance cover can provide protection. This is relatively inexpensive and will pay out if the insured person dies during the policy term. If the person survives, no payment is made and the policy ceases.  There is no cash in value at any time.

Terminal illness cover is usually included so that benefit would be paid if you were diagnosed with a terminal illness - in other words, you are soon to leave this mortal world!  This is usually only payable where the assured is not expected to survive more than 12 months.   Terminal illness benefit should not be confused with critical illness cover explained below. 

The main types are level term and decreasing term assurance. With level term assurance, the sum assured will remain the same throughout the policy term. There are many circumstances where level term cover may be appropriate to provide a lump sum in the event of death. It could be to pay off an interest only mortgage or provide a lump sum to generate income.

With decreasing term the amount of cover decreases over the policy term. This is often called mortgage protection assurance as it is usually used to protect the outstanding loan on a capital repayment mortgage. The life cover will decrease so that it is broadly in line with the capital outstanding on the mortgage.

Unlike term assurance, Whole of life cover has an investment element and is guaranteed to pay out whenever the policy holder dies. It is used to provide family or other dependants with financial support and is often used as part of Inheritance Tax (IHT) planning. The contributions to the policy reduce the person's estate for IHT purposes and provides a lump sum on death which can be used to pay part or all of the IHT liability.  The cost of whole of life cover is usually much greater than level term and decreasing term assurance.

Critical illness cover

A critical illness could severely affect your life. These are illnesses such as a heart attack, cancer or stroke - life threatening illnesses but not necessarily terminal. Unfortunately there is a very real risk of contracting a critical illness during your working life so it makes sense to consider critical illness cover which would pay out a lump sum if you were diagnosed with such an illness. Critical illness cover can be combined with term assurance so that cover for death and critical illness is provided by one policy.

Accident and illness cover

Loss of earnings because of illness or accident could bring financial hardship. In fact you are much more likely to be disabled by an accident or illness before retirement than to die so it makes sense to think about protecting your income. There are 2 main types of policy - accident, sickness and unemployment and income protection. We can provide details on request.

Cover for redundancy

Losing one's job because of redundancy may well cause financial problems. It is possible to protect your mortgage payments and some expenses for a limited period in these circumstances. This type of policy is known as mortgage payment protection. It could be used for protection against redundancy alone or combined with the accident and sickness cover mentioned above.

Private medical cover

There are many concerns about the service provided by the National Health Service and this prompts many people to look for alternatives in the private sector. People may want freedom of choice regarding the hospital, the consultant or standard of accommodation. Speedy and convenient treatment may be a priority.

Providing these choices is expensive and may not be possible out of capital or income. This is where private medical cover can help to pay for the services.

There are different levels of cover available and whilst comprehensive cover can be expensive there are also low cost and budget policies available.

Protection for businesses

Financial protection applies to businesses as well as individuals. This is especially true for small businesses where the proprietor's wealth may be tied up in the business and its continued success is dependent on his skills. It is equally true for young businesses with very few resources and reserves.

Death or illness could have severe consequences for a sole trader. There may be loss of income, business debts to pay or a family to support. In the case of a partnership, if one of the partners dies the partnership is terminated and the deceased's estate then owns a share of the assets unless there is an agreement in place.  There could be similar problems with small companies and shareholder directors.  Companies may have key personnel whose death or disability could cause significant loss of profits.

In all of these cases a protection plan may provide financial security and peace of mind.