When it comes to our money and our plans, it can be hard to balance short-term wants, long-term dreams and those unexpected events that are out of our control.

But considering ‘what if’ is vital to financial planning to ensure financial security and protection against unforeseen life-changing circumstances or events. You never know the future, so it helps prepare you for the unexpected.

Unexpected events

There are various complex risks in life that we all face, such as serious illness, accident or death. What would happen if something were to happen to you? Would your family be able to cope financially with the impact an unexpected event might have?

These are not easy questions to ask, but it is important to consider what would happen if an unexpected event or accident took place and how you could protect your family from the financial effects of serious illness or death.

Income Protection Insurance

Income protection insurance is a safety net that steps in when you cannot work due to illness or an accident. Unlike other insurance types, it offers regular payments that substitute a part of your income during such strenuous periods. Let’s delve deeper into how this system operates.

Purpose and payouts of Income Protection Insurance

This insurance type is designed to offer financial aid when you’re incapacitated due to sickness or injury, thus unable to earn. It typically disburses between 50% and 65% of your income, ensuring you can manage your living expenses even in your absence from work.

Long-term coverage and peace of mind

The payout continues until you can resume work, retire, die, or the policy term’s conclusion – whichever occurs first. This provision provides continuous coverage throughout your work, offering you peace of mind.

Comprehensive cover, a critical aspect

One vital attribute of income protection insurance is its exhaustive coverage. It encompasses most illnesses that could render you incapable of work, either temporarily or permanently, subject to the policy type and its incapacity definition. This extensive protection makes it a crucial element of your financial strategy.

Claiming on your Income Protection Insurance policy

Another significant feature is the ability to claim as frequently as required while the policy is active. This flexibility contrasts with other insurance types that might limit the number of claims. Income protection insurance usually comes with a ‘deferred’ or waiting period, during which you must wait for the commencement of payments post claim. Typical waiting periods span 4, 13 or 26 weeks, sometimes extending to even a year.

Impact of waiting period premiums

The duration of the waiting period influences your premium costs. The longer you’re willing to wait before receiving benefits, the lower your monthly premiums will be. This correlation lets you customise the policy according to your financial circumstances and requirements.

Critical Illness Cover

Critical illness cover is a type of insurance that delivers financial aid if you’re diagnosed with a particularly severe specified condition under the terms of the policy. It provides a tax-free, one-time payment which can be utilised to address treatment costs, mortgage or rent payments, or even modifications to your home such as wheelchair access.

Specifics of policy payouts

This form of insurance promises a payout if you’re diagnosed with one of the specific medical conditions or injuries stated in the policy. The payout is a single occurrence, and the policy terminates afterwards. Obtaining professional financial advice is important to fully comprehend which conditions are covered under your policy.

Variations in covered conditions

The covered conditions can vary substantially among different insurers. Some extensive policies cover 50 or more conditions, whereas others might be more restricted.

Examples of typically covered conditions

Generally, the specified conditions that could be covered include:

  • Stroke
  • Heart attack
  • Certain types and stages of cancer
  • Conditions like multiple sclerosis
  • Major organ transplant
  • Parkinson’s disease
  • Alzheimer’s disease
  • Traumatic head injury

Most policies also consider permanent disabilities resulting from an injury or illness. Some policies offer a smaller payout for less severe conditions or if one of your children has one of the stipulated conditions. However, it’s important to note that critical illness insurance does not cover all conditions.

Employer support and State Benefits

If a severe illness prevents you from working, you may anticipate that your employer will continue to provide some income level or may feel that you can rely on state benefits. Nevertheless, employees are typically transitioned to Statutory Sick Pay within six months, and relying solely on state benefits might not sufficiently replace your income if you’re unable to work.

Lifeline provided by Critical Illness Cover

Critical illness cover can be a valuable financial lifeline in such circumstances, enabling you to maintain your lifestyle and fulfil your financial obligations without adding further stress during an already difficult period. Always ensure you fully understand your policy’s terms, including what illnesses and conditions are covered, before making a purchase.

Life Insurance

Life insurance serves as a safety net, providing financial stability for your dependents, such as your spouse, partner and children, in the unfortunate circumstance of your untimely death. When considering life insurance, several factors warrant careful thought, including the kind of policy you prefer, the right time to secure one, and the purchasing process itself.

Life insurance policies can either provide a lump sum or regular payouts upon death. This monetary aid can support your dependents after your passing, enabling them to sustain themselves without your income. The amount they receive depends on your level of chosen cover.

Flexibility to tailor Life Insurance policy

One of the standout benefits of life insurance is its adaptability. You can dictate how the payout is structured, whether it’s meant to cover specific expenses like mortgage or rent or if you aim to leave an inheritance for your family. This flexibility allows you to tailor the policy to your family’s unique requirements and circumstances. Opting for the right policy is a pivotal step in the life insurance acquisition journey.

There are several types of life insurance policies available, including:
  • Term Life Insurance: This policy offers coverage for a specified period (the ‘term’). Should you pass away during this term, the policy pays out to your dependents.
  • Whole Life Insurance: This policy provides coverage throughout your lifetime and assures a payout upon your death, provided you continue with your premium payments.
  • Income Protection Life Insurance/ Family Income Benefit: As an alternative to a lump sum, this policy furnishes a regular income to your dependents upon your death.Life insurance should be considered if your demise would result in financial hardship for your dependents. This might be the case if you have young children, a spouse or partner dependent on your income, or a family residing in a home with a mortgage that you’re servicing.

To discuss any of the issues raised in this article, please contact your adviser, or call us directly on 0161 819 1131. Further information can also be found at gov.uk.

Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.

The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.

The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice.

Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

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