'Save some grief - why you need to protect your family from financial woes now'
The past few years, marked by the pandemic and the unfolding tragedies in Ukraine and the Middle East, have been a sobering reminder of how precious and fragile life truly is.
Like many, my wife Nicky and I have felt this, having lost a few close friends far too soon and with little warning. Behind each death is a story, all too often of a family with money worries.
When death occurs, it's not uncommon to uncover a financial picture that looks very different from what had been expected. On top of the pain and sadness of losing a loved one, there is suddenly also a financial shock; loss of income, and surprising debts.
Many people consider that they are adequately insured if they have their mortgage covered in the event of their death, but far too many of us don't even go that far.
As a Certified Financial Planner, a vital part of what I do is ensuring catastrophes like premature death are considered now, so there is a plan in place before something may occur.
Managing risk is an important part of that. A way of transferring the risk away from your family unit to an insurance company is by buying life assurance.
It doesn't always have the best reputation but ask a widow or widower who benefited from it and they'll tell you a different story. We insure our cars and our home; it's a natural step to insure our lives and income.
What should I insure?
Think about all your liabilities. An obvious one to start with is your mortgage, but also consider other debts you have which are currently outstanding: overdraft, credit cards, loans, car finance and so on. Having the funds available to repay these debts, plus funeral expenses, is a comfort to those you leave behind.
What insurance do I need?
Term assurance, which provides a payout if death occurs within a specified term, is the cheapest way to get protection. A mortgage protection plan could be used to cover your mortgage, and a separate term assurance plan used to cover your other liabilities.
After that, to cover a loss of income, I like Family Income Benefit plans. This is a term assurance policy that pays out a tax-free monthly amount for the remainder of the policy term, rather than a lump sum.
To work out how much you would need, deduct the payments on the mortgage and other debts you have, and calculate how much more you need for day-to-day living. You can arrange a Family Income Benefit plan for this amount, to go with your separate cover for the mortgage and other liabilities.
Together or separately?
For couples, arranging individual polices rather than a joint policy is slightly more expensive, but you can personalise the cover amounts to suit each of your needs. You can also ensure the benefits are paid into a trust, which will speed up payment, meaning the funds can be available before probate is granted.
I appreciate life assurance isn't exciting but leaving your loved ones heartbroken and in a financial mess isn't great either. If you have financial dependants, get yourself insured.
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