MAKE SURE YOU ARE PROPERLY INSURED
Any insurance provides peace of mind against life’s what-ifs. You may never need it but if you have loved ones who depend on your income, life insurance and critical illness cover will protect you and your family. Similarly, if you are working and have any concerns about how you and your dependents would manage financially if you became ill or lost your job, it’s a good idea to have income protection as well. ‘Anyone who would be worse off financially if they became seriously ill or would leave their loved ones in a worse financial position if they died, should really consider insuring themselves,’ says Adam Higgs, head of research at Protection Guru.
Income protection provides a replacement income if you are unable to work due to ill health. Critical illness cover pays a lump sum if you suffer from a life-changing illness. Life insurance pays a lump sum in the event of your death. Many people with dependents have all three, but it is important to think through whether you need each one individually.
A good starting point is a bit of crisis management planning, starting by looking at how you and your family would cope financially if you died or fell ill without insurance. How much goes out of the bank every month by way of fixed costs? How would you pay for these without an income? Even if you
do not formally earn a salary, you may contribute significantly to the household finances. The financial risk to a family of the death of a stay-athome parent, for example, has been put at £29,812 a year by Sunlife.
If you think you or your family would struggle to keep up with household bills and would need help if you got sick, it’s important to get protection in place. Analyse your monthly outgoings to assess the minimum household income you currently need to make ends meet. Then consider how much extra money you might need if one of you was sick. How would your family cope in this situation and would you face any extra costs? It is especially important to make this assessment if you have a mortgage, so that your family can keep up with repayments whatever happens to you, and there’s no risk of losing your home.
THE GOOD NEWS
Life insurance in particular is pretty cheap. A 40-year-old woman in good health should expect to pay less than £10 per month for £100,000 worth of life cover, says Higgs. This increases to around £50 a month if critical illness is included. Income protection on the other hand is more expensive. It might cost around £25 per month to get just £1,000 per month in the event you are unable to work due to ill health.
It’s important to shop around for the best deal (try moneysupermarket.com and comparethemarket.com) and to research different options. For example, if you’re in a couple, you may find you are better off taking out two separate, single life insurance policies rather than one joint policy. There is unlikely to be much difference in the price – typically just a few pounds – but a joint policy only pays out once, leaving the surviving partner vulnerable and without any cover at that point. Meanwhile, each single policy will pay out upon each death. This means that if, in tragic circumstances, you and your partner die together, your dependents will be able to claim on two policies instead of just one.
If you are employed, check whether you have a death in service benefit. This is a lump sum that your employer will pay out to your beneficiaries if you die while you are employed by that company. You usually need to fill in a form to appoint a beneficiary, however, so make sure you have done this correctly. And don’t forget to tell your loved ones this benefit exists.
If you are unsure about how much cover you need or think you could do with a bit of expert advice, an independent financial adviser will be able to guide you. Search on unbiased.co.uk or vouchedfor.co.uk to find one who suits your individual needs.
A good starting point is a bit of crisis management planning