Is your family protected?

By STEPHEN WOMACK
Updated:

 

WE all know the financial hardship that an accident, prolonged illness or a death can cause. But many people still fail to plan for the worst by investing in the insurance and protection plans that provide vital income if disaster strikes. In this four-page special report, Financial Mail spotlights the different types of insurance and explains how they can be woven together to create your own personal safety net.

MOTORISTS diligently shop around for the best deal on their car insurance. Holidaymakers routinely pick up travel cover at the supermarket checkout. We insure our homes, our caravans and even our pets.

But as a nation, we still seem reluctant to insure our most precious assets - our lives and our health.

Four out of ten adults have no life insurance, according to research by financial advice service IFA Promotion. Yet three quarters of these people have mortgages or dependants.

Margaret Hardy, a financial planner at independent adviser Professional Partnerships in Blackfriars, central London, says: 'Life and illness insurance are often overlooked.

'I speak to clients who want to save £100 or £200 a month, but have no financial protection. I remind them that without insurance, these savings won't pay the mortgage for long if they become too ill to work.'

And even when people do invest in cover, they frequently underestimate how much they will need. As this report explains, the average value of life insurance held today is insufficient to cover the average mortgage debt.

But it has never been easier to secure your financial future. There are a range of different insurance plans, together called protection policies, designed to help at times of crisis.

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Finding the right health cover

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Jason King, managing director of specialist adviser Life Policies Direct in Telford, Shropshire, says: 'Life insurance and critical illness cover provide a cash lump sum if you die or fall seriously ill. Usually arranged for a set term, typically 25 years, the money can clear debts such as a mortgage and provide security at an uncertain time.'

Other plans can pay a regular tax-free amount. Family income benefit pays a tax-free sum each month to dependants if the policyholder dies. Payments continue until the end of the preagreed policy term.

Income replacement cover provides regular cash for those who become too ill to work. Payments cease on recovery or on reaching retirement age.

The final group of plans, called payment protection insurance, cover specific expenses such as a mortgage or loan repayments. The insurance can meet these bills for a set period, typically a year, if an accident, illness or unemployment prevents the policyholder from working.

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The need for protection depends on your circumstances. Hardy says: 'Few people need all these types of insurance. You should pick and choose packages at different stages of your life.'

Those without dependants or a mortgage will have no pressing need for life insurance, but may want to guard against illness, for example. And many employees will have some basic cover through their jobs.

But those who are self-employed, who do not work, or who are in jobs with few perks, must build plans from scratch.

The cost of life insurance has been falling for the past decade.

This means that many of those who bought cover a few years ago can make savings by rearranging their insurance.

New providers have also helped to keep rates keen. This year has already seen Sainsbury and Asda start selling term life insurance policies.

These new arrivals are bringing fresh ideas to encourage more buyers. Raylene Bryan, product manager for life insurance at Sainsbury's bank, says: 'We will use data from our loyalty cards to send letters to families who buy nappies asking if they need life cover. It's about highlighting the importance of insurance at the right time.'

With a two-year-old son, Finley, to think about, teacher Louise Hopcroft, 38, and her partner Mark Himpson, also 38, turned to Sainsbury's bank for life cover.

The couple, who live in Bristol, pay £9.80 a month for £100,000 worth of cover. She says: 'We'd checked prices on the web and when we were shopping at Sainsbury's I picked up a life cover leaflet at the checkout. The price was competitive and we felt it was a name we could trust.'

Louise, who is expecting another baby in January, says that she and Mark, who is a manufacturing manager, have some life insurance through their jobs, but with a growing family, they wanted to top up.

As well as the supermarkets, other direct providers such as Direct Line, Virgin and Churchill are promoting life and critical illness cover.

The alternative is to use an independent broker, who can select plans from a wider range of providers, including specialist insurers such as Bright Grey and Scottish Provident.

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