Covid-19 has brought the issue of financial security close to home for many people, leading to an increase in enquiries from clients who wish to protect themselves and their family from the financial consequences of an illness or injury which impacts their ability to work. In this guide, we offer a 7-point checklist for you to measure your own level of financial protection. We hope you find this helpful and invite you to get in touch to discuss your own goals and needs.
#1 Emergency funds
Do you have at least 3-6 months’ worth of living expenses safely stored away in an easy-access savings account? Having this emergency buffer is typically the first step in establishing a good financial protection plan. It provides some funds should an urgent expense come up such as a family emergency, helping prevent you from needing to resort immediately to credit.
#2 Debts
We generally recommend clients avoid debts such as credit card and personal loans which often come with high interest rates. Unless the balance is cleared each month, the regular payments might eat into your monthly income in good times but can be crippling should your income suddenly go down/disappear due to lost work.
#3 Life insurance
If you are a homeowner with dependants and a mortgage, life insurance provides a vital financial lifeline to your loved ones, allowing the mortgage to be repaid and securing the roof over your loved ones heads. Many forget to insure a stay-at-home partner too, as their disappearance would also place an indirect financial strain on the household finances i.e. if nobody can provide free care of the children.
#4 Employment benefits
Some employers provide financial protection benefits. It is worth checking your contract and company policies to see what is available. In particular, some employers offer death in service benefits to their staff, providing a lump sum to your family worth 2 to 4 times your salary. If you have this, then bear in mind that it may affect your other life insurance decisions.
#5 Critical illness cover
This is a type of insurance which can provide a payment if you suddenly found yourself unable to work due to a debilitating illness or condition, such as a heart attack. This is a policy similar to life insurance in that it pays out a lump sum, but payment is made upon diagnosis of a specified condition – rather than upon death. Critical illness cover can provide a vital extra layer of stability and peace of mind for many people, working with other policies to complement each other.
#6 Income protection
Critical illness cover can be great for many people. However, one limitation is that it can be quite limited in the illnesses/conditions that it pays out for. For those looking to cover themselves in a broader set of circumstances – e.g. diagnosis of depression or a bad back – income protection could be an attractive option. Instead of a lump sum, this pays out a regular income to replace a portion of your salary – usually between 50-70% of your previous earnings before you were signed off from work. Some policies run indefinitely whilst others may only pay out for a year or two. Check the fine print to make sure it is suitable for your financial situation, needs and goals.
#7 Power of Attorney
If you found yourself suddenly incapacitated, could your family still manage financially? Would they be able to easily manage your wealth and finances for you until you (hopefully) get better? Power of Attorney is designed to cater to this specific situation. It bestows your permission to a trusted person (or people) to make decisions about your estate on your behalf, should you find yourself unable to make them. It can be hugely important for helping your loved ones access important bank accounts and insurance policies in your name, since even your spouse will likely struggle to be allowed access to these without explicit Power of Attorney.
Invitation
If you would like to discuss your financial plan and investment strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.