Coping with a major life event, such as a serious illness, accident or death, is difficult at the best of times. The emotional and physical impact of such events can be devastating. But how much harder would it be if, in addition to the personal turmoil, your loved ones also lost their main source of income, as the major breadwinner was no longer around or unable to work.

Do you know how your dependents would cope financially in these circumstances? Would they be able to meet their day to day living expenses? Could they afford to stay in the family home? Would your children continue to enjoy the lifestyle that you had envisaged for them? Could you pay for any medical treatment that may be required?

Although these are not easy questions to ask, it is important to consider what would happen if an unexpected event or accident took place, and how you would protect yourself and your loved ones from the financial effects of serious illness or death.

Preparing for the unexpected

Deciding what your priorities are and understanding what options are available to you is a key part of the protection planning process – ensuring that you have the correct policies in place to meet your specific requirements.

There are many types of insurance available, each one designed to meet a specific need, for example:

Life insurance

Life insurance can be an essential part of creating a sound financial plan, particularly for those with financial dependents, giving peace of mind that in the event of your death your dependents would have financial security.

• Term life insurance. This provides cover for a set period – perhaps until your children reach maturity, or until a debt such as a mortgage is paid off. It could mean that in the event of your death, your children can remain in the family home, or that they have sufficient capital to meet their outgoings until they are able to provide for themselves financially. Level term insurance pays out a fixed amount if you die during the term of the policy. Decreasing term insurance pays out less as the policy progresses and can be used to cover things such as a mortgage debt, which reduces over time.

• Whole of life insurance. This cover continues for your entire life, so does not have an end date. It could be used to provide a lump sum which could generate an income for a surviving partner later in life or to pay for funeral expenses.

• Family Income Benefit. This provides a sum assured that reduces uniformly over time but provides regular payments of capital on the death of the life assured.

Income protection insurance

Income protection insurance can provide you with a replacement income if you are unable to work due to an illness, injury, or disability. This could help you to meet your financial obligations and maintain the cost of your everyday living, such as your mortgage or rent, bills and food if you are ill.

Income protection insurance is important for everyone, not just those with dependents. If you do not have protection in place you may have to rely on savings, benefits or the help of family and friends and this may not be enough to meet your outgoings.

Income protection insurance is particularly important if you are self-employed. The self-employed are often unable to claim many of the benefits that employees are entitled to, including statutory sick pay. Being self-employed also means you don’t have the luxury of having an employer to rely on for sickness cover or health insurance.

There are many different types of income protection insurance policy available. It is important that you compare the different options and fully understand the terms and conditions of the policy to ensure that it meets your specific needs.

Critical illness cover

Could you cope financially if you were diagnosed with a critical illness, such as a heart attack, stroke or cancer?

A critical illness policy can provide a tax-free lump sum payment, should you be diagnosed with a specified critical illness or become seriously ill. This can give you peace of mind knowing that you are financially protected if the worst were to happen.

The money can be used for any purpose; possibly to pay for medical treatment, make lifestyle or home adaptations, to provide an income if you are unable to work, or to cover other costs associated with your illness.

NB - Critical illness cover is not a substitute for health insurance, which covers the cost of private medical treatment for health conditions which develop after your policy starts.

Life is unpredictable – but you can be prepared for the unexpected

Unexpected events such as bereavement or a critical illness are upsetting subjects to think about, but there is no getting away from the fact that they do happen.

Effective and suitable protection can offer a financial lifeline, giving you one less thing to worry about should the unthinkable happen.

Seeking advice can help to ensure that you have the right policies for your particular circumstances, and that your premiums are competitive. Reviewing your policies regularly will ensure that they continue to meet your changing needs.

Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content was accurate at the time of writing. Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.

FP2024-062