All you need to know about life insurance and financial protection

Knowing how best to safeguard your family’s finances in the event you unexpectedly find yourself unable to work through illness or worse can be bewildering.

What are collectively known as protection policies exist to replace lost income or pay off large debts, such as a mortgage, should the unexpected happen.

As with other insurance policies, they’re designed to suit all needs - whether you’re single, part of a couple, or have a family. 

Here we outline the options available that are worth considering, whatever your circumstances.

First things to consider

In addition to taking out insurance it’s wise to ensure you have some money put aside to help cover any unexpected events in the short term that could impact your finances.

As a benchmark, you should consider setting aside the equivalent of three months of your salary.

You should also check whether your employer already covers you for certain events.

Many large companies have death in service benefits which can pay your partner a multiple of your salary should you die unexpectedly.

If appropriate you may also want to check whether your partner’s pension scheme offers any benefits.

Before buying extra insurance you should also check whether your employer or professional organisations you’re a member of offer insurance options at a discounted rate.

Life insurance

Arguably, the best known and most popular protection policy is life insurance as it provides a lump sum when a fatal accident or illness occurs.

Thankfully fatal accidents or illnesses are not that common, but they do happen. As a result life insurance is often inexpensive for the cash payout it covers.

It’s therefore the insurance of choice to cover those very large expenses that you might want to protect against such as a mortgage, business loan, and school fees.

One point worth noting is that when buying life insurance, it’s advisable to put your policy in trust.  

This simple arrangement ensures that if you die the cash payout goes directly to your chosen beneficiary and not back into your estate, which could be liable for inheritance tax.

Critical illness cover

Another popular type of financial protection is critical illness cover.

Like life insurance, critical illness insurance can pay out a large cash sum.

But unlike life insurance which pays out on death, critical illness pays out when someone is diagnosed with a serious and life shortening health condition covered under the policy.

Critical illness is often purchased alongside life insurance as it can fund the cost of making adjustments to family life ahead of a condition becoming fatal.

This could include the holiday of a lifetime or necessary adjustments to the family home.  

When you have settled on the insurance that’s best for you, do take time to check what is and isn’t covered as policies can vary.

Find out more about  MORE TH>N’s Life and Critical Illness cover here