New Year protection overhaul

So taking a few minutes to ensure that your current arrangements reflect your circumstances as they are likely to be throughout the year can make good sense.

For example, do your life assurance and income protection arrangements truly reflect your current pay package – or that which you might have by the end of this year? It can be all too easy to forget to increase your cover when you receive a pay rise, but once you and your family become accustomed to a level of income, it can be very difficult to readjust. Yet the death or long term illness of a breadwinner can result in real hardship if there is insufficient insurance in place to make up their income.

It is not just your income that is a factor. If your borrowings have risen during the past year – or may do so during 2008 – perhaps because of an increased mortgage, or as the result of unsecured borrowings such as credit cards, the capital and interest should be insured so that on your death or incapacity, they are covered.

And if you have prospects of a promotion or pay increase during the next year, it could be a very good idea to arrange additional cover now, before you add another year to your age and premiums get higher!

How much is enough?

There are no hard and fast rules generally accepted about the level of cover you should have. However some guidelines might be as follows:

• All debts should be insured for at least the outstanding balance plus the interest that may be due for a period of up to six months while issues are resolved, and to cover any early repayment penalties that may apply;

• You should have life assurance to provide enough for your family to live on for as long as necessary - at least ten times your annual income as a lump sum is a good starting point;

• You should also have income protection to cover at least two thirds of your income; more if possible, in the event of illness or injury, for at least two years, ideally much longer;

• It is also a good idea to have critical illness cover that pays out if you are diagnosed with one of a list of major illnesses, to cover the additional costs associated with such a period of incapacity.

And don’t forget

It is not just the main breadwinner whose absence could cause severe financial difficulties. If a carer or secondary earner was to be incapacitated or should die, not only will the family income suffer, but there could also be additional costs to be covered, such as child care, house cleaning, cooking and so on. Even those who are not “economically active” make a major contribution to the family economy.

If you require any further information about the services that we provide or would like to review your financial planning position, please contact us

Articles