How to Protect Yourself, Family & Assets
Author: Simon Wigglesworth
- Ensure your liabilities are covered in the event of death or illness. Mortgage sizes are still increasing as property prices continue to rise and for a lot of people the monthly payment is their biggest outgoing. It is vital that you know the extent of your mortgage and other loans and that you are aware of exactly how long they last and whether they are on a repayment or interest only basis. You will then be able to tailor a suitable protection product to match these liabilities and make sure they are fully paid off if you were to die or suffer a critical illness.
- Protect your family. For most people, the standard of living they expect their family to have over the years is fully dependent on the day-to-day earnings of one or both partners. Should these earnings be cut short, how much will your family need to ensure they continue the standard of living you were expecting for them and that they can still meet their long term objectives? This could be as simple as making sure the bills are covered in your home for the next few years or it could include the full cost of private and further education for multiple children spanning a term of more than 20 years.
- Lump sum or regular income? Most providers offer products that will provide your benefits as either a single lump sum or as a regular income for a fixed term. When protecting things like mortgages, it makes sense to pay off the full liability as a lump sum as soon as possible. When protecting your family and replacing lost income, however, it could be more cost effective to provide benefits as income and make sure it is increasing with inflation. This type of benefit is called Family Income Benefit and is usually cheaper than protecting a lump sum to provide equivalent income. You still have peace of mind however, that your family will receive a fixed income for as long as you have set this for.
- Protect your assets. Once you have built up your hard earned assets including your house, make sure you don’t lose a chunk of this on death in the form of Inheritance Tax. A simple way of covering an inheritance tax liability is to take out a life assurance policy to cover the tax. This type of policy would usually be a ‘whole of life’ policy and it must be written in trust to ensure the proceeds do not form part of your estate and simply add to the tax problem. As part of later life planning, some people choose to make sizeable gifts to children and grandchildren to reduce their inheritance tax liability. These gifts are classed as potentially exempt transfers and will still be liable to IHT for 7 years on a tapered basis. It is possible to take out a ‘Gift inter vivos’ policy to protect the tax liability that would be payable on these gifts until they are fully out of the estate.
- Make sure you review your cover. It is essential that you keep your protection policies under review. Circumstances change over time and so will your protection needs.