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There are two primary pillars of the overall financial planning effort to move you towards your goals – wealth growth and wealth preservation. Both of these are inextricably linked; after all, it makes little sense to grow your net worth only to expose it to unnecessary risk.
It is important at all times to check your financial protection profile. Yet at the time of writing, when coronavirus is still harming national economies and household finances, it is now arguably more important than ever. In this article, our financial planners here at Cedar House offer some thoughts on how you can review your financial protection plan.
We hope you find this content helpful, and invite you to contact our team here at Cedar House for more information or to access personalised financial advice:
020 8366 4400 or firstname.lastname@example.org
Checking short-term savings
Most people have money in the bank. Yet not everyone has organised their short-term savings in an efficient way. The Financial Services Compensation Scheme (FSCS), in particular, is vital to bear in mind here. In 2020-21, this guarantees your money up to £85,000 in each bank in the event that it fails. Yet not every financial institution holding savings is covered by the FSCS. For instance, if you have an overseas bank account containing emergency funds then it may not be protected. Moreover, consider spreading your savings across different banks which are covered by the FSCS if you have more than £85,000 saved in one such institution.
Checking employer benefits
If you are employed then it’s a good idea to check your contractual benefits as you review your wider protection profile. Sick pay is a good place to start. Although employers are not required to offer this to workers, some will still do so (e.g. Statutory Sick Pay – SSP – up to 28 weeks; or £95.85 per week in 2020-210). It’s a good idea to check whether these benefits (perhaps with the help of some savings) might keep you financially afloat for 3-6 months if you fell seriously ill. Employers can also sometimes offer generous packages such as private medical insurance (PMI) which can make a big difference to the speed and quality of medical care you can access.
Yet it’s also important to consider what kind of protection you might still have in place if you find yourself without work (e.g. due to coronavirus-induced layoffs). In particular, some employers offer “death in service” life cover which pays out a lump sum to your family (e.g. 4x your salary) if you die whilst employed at their organisation. However, if you lost your job and then also your life a short while later, would your family still have access to a much-needed lump sum?
Checking protection policies
As morbid as it is to ask, it is vital to the interests of your dependants to consider: “What might happen to them if I could no longer work?” Whether you are the main breadwinner or a joint contributor to your household finances, losing your income could add significant financial strain in this scenario if appropriate financial protection is not in place. Indeed, even the death of a stay-at-home (non-earning) parent/partner can deal a large financial blow as the “free work” this person normally does at home is now no longer being done (e.g. cleaning, cooking, school runs etc.). As such, there are at least three types of financial protection which are good to review:
As touched upon above, life insurance provides a lump sum to your family in the event of your premature death. One of the advantages of having your own policy is that it’s validity does not depend upon remaining with your employer (provided you keep making the payments). Such a policy could provide much-needed “financial breathing space” should the worst happen, maybe enabling your surviving loved ones to pay off the mortgage.
Critical illness cover (CIC)
Of course, your income might not just be taken away due to death or redundancy. There is also the possibility that you could contract a debilitating illness, injury or condition (e.g. heart attack) which leaves you unable to work for the foreseeable future. To cover such a scenario, critical illness cover can be a helpful source of financial protection. This provides a lump sum should you be diagnosed with a defined illness/condition outlined in the policy.
In other cases, it may be more appropriate to continue receiving a steady stream of income in the event that you become seriously ill/injured and cannot work. This can be achieved through income protection, which provides a monthly income as a percentage of your earnings (e.g. 66%) over a specified period.
Conclusion & invitation
This article should help you get started with the process of reviewing your financial protection profile. For the most peace of mind and comprehensive plan, however, it’s worth considering professional financial advice.
Interested in discussing your protection or wider financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team via a free, no-commitment consultation:
020 8366 4400 or email@example.com