Income protection should be seen as one of the foundations of comprehensive financial planning.

Life assurance

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. 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.

Income protection

 

Your earning potential is likely to be your family’s most valuable asset. Income protection plans are designed to provide you with an income should you be unable to work for a prolonged period due to illness or injury. These plans will cover you for a specified number of years (usually until retirement) and, in the event of a qualifying claim, the proceeds are paid until you are able to return to work or reach the end of the term, whichever occurs first.

Critical illness

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 don’t 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.

Protection is key

Protection is about more than simply buying a life insurance policy – it’s about optimising the effectiveness of your wealth for the next generation.

Without proper protection in place, you may not be able to guarantee that your wealth is passed to those you intended, in the way you intended. But there are strategies you can employ to ensure your loved ones benefit from your wealth.

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