When it comes to safeguarding ourselves and our families against the unexpected, financial protection is, of course, essential. But while you may already be aware of the importance of protection insurance, here are six facts that you might not be so familiar with.
From what you can insure, to how you can receive the payout, there’s a lot more to protection insurance than a lump sum to cover the mortgage.
Knowing these key details can help you understand how protection insurance can benefit you, and ensure the best plan for you and your loved ones.
When it comes to financial protection, it's easy to think solely of mortgage payouts. But there are many other areas of your life that could be covered - for example you could protect school fees, monthly household expenses, and the interest on any loans you might accumulate. Having protection that covers your standard of living means that daily life wouldn’t change financially for your loved ones if you were to become ill or die.
It's natural to think of financial protection insurance as a one-time payment of a lump sum when tragedy strikes, but that's not always the case. There are different options and levels of coverage that you can choose. You can arrange for the plan to pay out on a monthly or annual basis – which could be useful if it’s being used to cover regular expenses.
The payment can be set up on a range of different terms: on a decreasing basis (in conjunction with a repayment mortgage for example) level or increasing basis (so it keeps in line with inflation). This can also help to reduce the cost of the plan.
Did you know that the money from your insurance policies can be held in a trust? Trusts function like a secure third-party savings account that is separate from yours, so if something unforeseen were to happen, you can rest assured your protection insurance plan would still be secure.
It can also help to speed up the process of paying the benefits out to your loved ones, and ensure any payment does not become subject to Inheritance Tax.
It's important to bear in mind that the trust needs to meet certain requirements to be effective, so it's important to make sure your trust is set up correctly. Additionally, the regulations and types of trusts vary depending which country you reside in.
Protection insurance isn't just for individuals; you can use it to protect the finances of your business too. Applying for protection insurance through your business can be an interesting – and creative – way to save on tax. Whether you’re a sole proprietor or you manage a small company, there are a number of options available.
It can be easy to take your employee benefit package for granted, but did you know that your protection insurance can be an excellent addition to it? Your personal protection plan could be designed to dovetail with what your employer provides in order to make up any shortfall. For example, you may be entitled to sick pay for the first three months - your income protection plan could be designed to start after that so you wouldn’t have to rush straight back to work.
While many people assume insurance providers won’t pay out, it’s important to know the facts. Insurance companies are not out to deny claims - in fact, they actually do want to pay out when the right conditions are met. According to the latest figures from the Association of British Insurers and Group Risk Development, a record £6.8 billion was paid out in individual and group life insurance, income protection and critical illness claims in 2021.
We have seen that financial protection is one of the key decisions to make for yourself and your family, and we've explored some interesting facts that you may not have been aware of.
Even if you already have insurance in place - and all the above is taken care of - it’s always a good idea to ensure your policies are up-to-date. If not, they can easily be changed to accurately match your circumstances.
You can book an online meeting with one of our advisers at your convenience here.
