Protecting yourself and your family with adequate insurance cover
Insurance is one of those things that most of us have neglected to think about at one time or another. After all, provided nothing goes wrong, there's no reason for it to be at the forefront of our minds. Unfortunately, life doesn't always run smoothly. And when you leave it too late to get the right protection in place, you and your family could face further stress at an already difficult time. This problem is even more complicated for high net worth individuals (HNWIs), who may have assets and financial affairs that need specialist consideration.
While it is difficult to think about, ensuring your family is protected in the event of a tragedy can at least give you peace of mind that an already stressful time won't be exacerbated by financial troubles. The best policy
for you can only be established through an assessment of your personal situation, but there are a couple of points to consider.
LEVEL AND DECREASING TERM LIFE INSURANCE COVER
Life insurance pays out a tax-free lump sum upon the death of an insured individual. It can be arranged as level term insurance, in which the amount stays the same throughout the life of the policy, or decreasing term insurance, in which the cover level diminishes over time. The latter is usually less expensive, and is popularly used to cover a decreasing mortgage liability. Life insurance is a key consideration if you have taken out a large mortgage, particularly if you are the person primarily responsible for paying it - although mortgage protection insurance is an option here, too. Life insurance can also be arranged to pay out in trust for your dependents; this is most commonly used to ensure any children are well looked after in the event of your death.
WHOLE OF LIFE INSURANCE COVER
A common approach to life insurance is to take out a policy with an end date, perhaps to align with when a mortgage or other large financial liability is paid off. However, many HNWIs are keen to take out a policy that lasts for their entire lifetime, to provide a guaranteed pay out upon death. This is known as 'whole of life' insurance, and it is attractive for a number of reasons. It can cover funeral expenses and estate planning, as well as providing security for a surviving spouse or dependents. Understandably, premiums for whole of life insurance are much higher than term insurance. But there can also be tax advantages to a whole of life policy.
Critical illness cover (CIC)
Although many people prioritise life insurance, CIC is an incredibly valuable form of protection. Critical Illness Cover pays out a lump sum upon diagnosis of medical conditions such as cancer or Alzheimer's. The conditions covered will depend on the insurer, but many major illnesses are included. This money can then be used to support your family or cover your outgoings in the event you are unable to work. This is particularly valuable if your work is the primary source of income.
Income and mortgage protection insurance cover
Income protection another option you may wish to consider, particularly if you and your family rely on your income to meet key obligations. This covers you against the loss of income resulting from illness, accident, or unemployment. It is also possible to arrange mortgage protection. This specifically covers what is likely to be your largest financial commitment should illness, injury, or unemployment render you unable to make your payments for a period of time.
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