So far in this blog series we have discussed what to consider if you live longer than you expected.
What if this was not the case though, and something happened, cutting short your time here on earth. It’s a morbid thought I know, but it is of equal importance when you consider financial planning. Eventualities must be considered, and it is never too early to start this thought process. Your pensions for example may form part of your estate that you leave behind for your loved ones, so they are looked after, and can continue to live a level of lifestyle you want them to live.
All too often, people do not give this area of planning any thought, and it is left to those they leave behind to sort everything out or to fend for themselves. Death is such an emotive subject, and one that can create family issues when sorting the estate, or in dividing up assets. It can sometimes change people.
It is such an emotive subject, and one that can create family issues when sorting the estate, or in dividing up assets. It can sometimes change people and should be addressed upfront.
So, would not it be better to put provisions in place and have your ‘house in order’ before you die, so what you want to happen, happens, so your loved ones do not have that pain and anguish at their most vulnerable time.
Over the next few blogs, we will explore different areas for consideration, with the key messages being:
The importance of protection;
The different types and what they provide;
The importance of having a valid will;
The importance of considering what happens to your business on death.
I will be joined by subject matter experts who will be contributing individual posts, and their details will be included with their contributions.
In this blog, let us consider the overall importance of protection.
Protection can come in many forms, covering many things. Several forms of insurance we take for granted, and in some cases like car insurance for instance, are required by law. But not all are, and some types of protection are only thought about when it is too late, and the need becomes apparent.
I expect for many reading this blog who have beloved pets, you will have pet insurance policies, and see this as a necessity, covering vets bills etc. Similarly we have buildings and contents insurance for our properties and as already mentioned, by law you need car insurance.
As individuals, and as parents or business people, we often do not consider insuring ourselves against the unforeseen.
But as individuals, and as parents or business people, we often do not consider insuring ourselves against the unforeseen. What follows is a summary of some key areas of protection for consideration:
Life assurance provides a lump sum on death and comes in two basic forms: term assurance and whole of life assurance.
Term assurance provides cover for a specified period of time, whereas whole of life assurance will provide a lump sum whenever death occurs, provided contributions have been maintained for the duration of the plan.
Term plans are typically used when covering a financial liability that will reduce or end in the future, for example repayment of a mortgage or to provide a sum to cover the cost of educating your children (also known as Family Income Benefit).
Whole of life plans are typically designed to cover liabilities that will arise on your death, no matter when that is, such as an Inheritance Tax bill or to supplement what you leave to your heirs. Whole of life plans are also used where the period of cover is unknown or uncertain.
2. If you are diagnosed with an illness such as cancer or suffer a heart attack, you and your family may find yourselves financially worse off. This is because your expenses are likely to be the same, or even higher, but you may be unable to work or even decide you do not want to work any longer. Critical illness plans provide a lump sum in the event of you being diagnosed with one of a large number of specified illnesses. They can be structured on a term or whole of life basis and, given that we are more likely to suffer a serious illness than to die before we retire, it is perhaps the most valuable element of all protection plans
3. The death or serious illness of a key director or employee can have far-reaching or even disastrous consequences for a business. This could result in:
loss of profits
the recall of loans
loss of key clients/contacts
reduced practical know-how.
Having the correct business-related insurances in place and making sure that they are regularly reviewed and updated as your business changes can be a particularly onerous task. How do you pass on or close down an existing business? If you are a business partner, how would the shares in your business be dealt with upon death? Are you or any of the other owners so critical to the success of the business, that you are classed as a key person, and as such, should be protected?
Next week’s blog will explore some of these options in more detail. Then in the week’s following we will address the other topics mentioned.