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Financial protection

Ensuring a secure future for you and your loved ones

Nobody wants to consider what would happen if they became too ill to support their loved ones financially. Financial protection is key to creating a secure future for your loved ones, but understanding what cover you may need can be confusing.

Importance of financial security

Have you considered the financial implications if a loved one was unable to earn money, became ill or were to die prematurely? It’s not something we like to think about, but if you have left regular employment and are now either retired or have become self-employed, then any previous protection you received from an employer now becomes your responsibility.

Think about the regular items you and your loved ones spend money on—holidays, socialising, club memberships, family events. Paying for these could become more difficult without the right protection in place.

Covering essential costs first

Start by covering your debts and other essential costs, such as mortgage payments, council tax, utilities and food costs. You can then consider additional protection for other priorities.

The main types of protection include:

Healthcare Insurance

Most UK residents are entitled to free healthcare from the NHS. However, some individuals also opt for private medical insurance, which pays some or all of your medical bills if you’re treated privately. Basic policies typically cover the costs of most inpatient treatments, and more comprehensive policies extend their coverage to outpatient treatments.

Critical Illness Cover

Critical illness cover pays a tax-free lump sum or regular payments upon diagnosing a specified critical illness. A lump sum could help you to take time off, modify the house, pay for medical treatment, or give you time to recuperate or adjust to your new condition. You can also build in children’s cover – a lump sum payout if they are diagnosed with a critical illness could allow you to take unpaid leave to care for them.

Income Protection

Income protection pays out a regular income to replace income you’ve lost through being unable to work. You can choose to take cover for a set time period – for example, one to three years or until age 65 – and delay the start of payments for a number of months, both of which can help keep premiums down. You can also choose your level of cover – usually somewhere between half and two-thirds of your income.

Life Insurance

Life insurance pays out on death and can provide a lump sum or regular monthly payments over a specified timeframe – say, until children reach a certain age. The payments can help pay off or cover a mortgage, pay for school fees, and cover lost income.

Protecting your inheritance

In the event of your death, the size of your estate could determine whether your family or other beneficiaries become liable for Inheritance Tax (IHT). This tax can place a significant financial burden on your loved ones if insufficient funds are readily available or if adequate plans are not in place.

Importance of strategic planning

Without proper planning, your family may be forced to sell valuable assets, such as the family home, to cover the tax bill. Therefore, it is crucial to consider all available options to protect your estate and ensure that your beneficiaries receive their intended inheritance.

One effective strategy is to set up a Trust for your dependents. A Trust offers several advantages that can alleviate the financial strain on your loved ones. It can pay quickly upon death, eliminating the need to wait for probate to access the funds.

Setting up a Trust

A Trust also falls outside of your estate, meaning there is no Inheritance Tax liability as long as it has been in place for seven years before your death. Additionally, setting up a Trust allows you to decide exactly how much money goes where and when giving you greater control over the distribution of your assets.

Another critical component of IHT is considering pensions. Pensions generally fall outside your estate, offering a significant advantage in reducing potential tax liabilities.

Complexities of pensions

However, the rules governing pensions can be complex, necessitating professional advice. It is essential to inform the pension scheme of the right beneficiaries and keep your nomination forms up to date to ensure your family benefits as intended after your death.

Properly managed pensions can offer substantial tax advantages and financial security for your loved ones. Regularly reviewing your pension arrangements is vital to maintaining the effectiveness of your IHT strategy.

Regular reviews and updates

Reviewing and updating your financial plans regularly is crucial to protect your inheritance effectively. Life changes such as marriages, births, or changes in tax laws can significantly impact your current strategy. Staying proactive ensures that your estate remains optimally managed and protected.

IHT planning is a complex field requiring careful consideration and expertise. Seeking professional advice can help you navigate the intricacies of Trusts, pensions, and tax implications, ensuring your legacy is preserved for your loved ones.

Taking action for peace of mind

Understanding and choosing the right financial protection ensures that your family remains financially secure despite unforeseen circumstances. Assess your needs and make informed decisions to safeguard your loved ones’ future. If you require further information to make informed decisions about financial protection, please contact us for expert guidance.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

Adam Reeves

Author: Adam Reeves

DipPFS Cert CII (MP&ER)
Independent Financial Planner, Wealth Manager, Director

Last updated on

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Unfortunately I had to claim on my critical illness insurance due to my wife being ill and because of the sound advice Adam gave in acquiring this insurance we ended up being financially safe through a tough time.

Steve - Kent

Adam did a review of our financial situation, confirmed that Flexible Drawdown best suited our needs as a family, and then did all the research into the best product for us. He will continue to monitor it for me. He acted extremely promptly because we had a deadline for requiring the lump sum; went out of his way arranging meetings during non-office hours, was professional yet friendly and explained a difficult subject very well.

Clare – East Sussex

Adam did a thorough review of my pension policies, clearly explained how well they had performed, how flexible they were, how the market regulation has changed, and, crucially, what the tax implications would be if I were to leave them untouched. He accurately assessed my attitude to risk and recommended an up-to-date solution that will offer me the greatest flexibility at retirement.

Greg – East Sussex

Adam was quick to assess & understand my situation, and was able to discuss & communicate in a very concise and simple way the various options available to me, taking time for me to understand and clarify where necessary. My understanding & knowledge of taxation & pensions has increased significantly allowing me to feel much happier making financial decisions for the future.

Rob – West Sussex

Adam and his team undertook in-depth research into our existing QROPS schemes and clearly set out both pros and cons of transferring the funds back to the UK. Having decided to go ahead with the transfer, Adam and his team worked extremely hard to facilitate the transfer. The QROPS pension trustees were not always the most professional or responsive organisation – however we were very grateful for the perseverance and commitment that Adam showed us as clients.

Jonathan – East Sussex

Adam offered a range of financial products , the one he suggested was affordable and proved to be a good choice.  Returns on investments have exceeded my expectations, based on Adam’s advice and guidance. Profits have enabled house improvements to take place.

David - Surrey

Adam arranged an appointment very timely, he explained his role and qualifications as an IFA giving me reassurance , we went through my retirement and investment goals. Adam discussed my options explaining in great detail, I felt relaxed during our discussions allowing me to fully understand my choices. I feel very confident in the financial advice allowing me to enjoy my retirement.

I was very happy with Adam’s recommendations and explanations of financial products which would suit my retirement goals, I feel this has helped me review and reduce my financial risk as I reach retirement, leaving me feeling confident that I can enjoy my retirement plans.

Ron – West Sussex

After initial meeting Adam put together a very detailed and thorough written plan. At our second meeting he went through the whole booklet and explained everything in layman’s terms which made it a lot easier to understand.

I am very happy with everything that was suggested and put in place especially with something as big and important as pensions. Adam and his team have taken a huge weight off my shoulders and I would highly recommend their services to anyone needing help with their financial planning and pension.  Adam couldn’t have been more helpful, and even came outside his normal area to meet me on a number of occasions.

Richard - Kent
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Data is compiled by Adviser Portals Ltd every 60 minutes. Information is not realtime. Last updated: 05/12/2024 at 07:00 PM
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