Review your financial protection for 2022
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
With the arrival of the Omicron variant of COVID-19, we are once again reminded that we live in an uncertain time. This raises the question: are your finances prepared for difficult situations and events? Specific questions then follow, which can include:
- If you had a terrible accident and could no longer work, would you still have an income?
- If you were diagnosed with a serious illness (e.g. cancer), is there an insurance policy ready to provide you and your family with a much-needed lump sum?
- If you died prematurely, would your loved ones be able to cope financially?
Such questions are morbid – especially during a cheerful time like Christmas. However, the quiet moments of the season often provide important time to reflect on the past year, the one ahead and what steps you might need to take to improve your financial plan. Below, our financial planning team in Lincolnshire offers this short checklist to help you review your financial protection.
We hope you find this content helpful. If you want to discuss your own financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
#1 Emergency savings
2020 and 2021 have been difficult years for many people, with successive UK lockdowns putting financial strain on households due to lost work and business. Others have been more fortunate – able to continue working from home, receiving furlough payments and saving on their commute. Regardless of your situation, consider taking time this Christmas to review your easy-access emergency savings.
Many financial planners recommend setting aside at least 3-6 months’ worth of living costs here, to help cover large and unexpected expenses (e.g. a family emergency or replacing a costly, necessary household item). Having such a buffer in place helps reduce the need to turn to credit in difficult circumstances – such as looking for new work after redundancy.
#2 Life insurance
We all know that life insurance pays out a lump sum if you die within its terms. However, have you checked lately to make sure it is fully up-to-date? For instance, perhaps you are nearing the date of your policy expiry, but your circumstances have changed and you need a policy to keep covering you – for longer.
Another scenario might be that the size of your mortgage has increased since your last policy (e.g. if you moved into a bigger home). One reason people take out life insurance is to settle any outstanding mortgage debt if they die prematurely. However, if the lump sum no longer covers the amount you owe on the house, this could leave your surviving loved ones at risk.
Perhaps your family situation has changed and requires a new policy. Having a first child can be a good time to think about life insurance. Before, if you or your partner/spouse died, then your life insurance was likely intended to provide the surviving person with a lump sum. With children on the scene, however, there is the possibility that both of you might die and leave a dependent behind. Here, you might need a new policy which grants a lump sum to your son/daughter (e.g. via a trust) – or their guardians – in such a scenario.
#3 Income protection & CIC
None of us knows what may lie around the corner. We all hope for long, healthy lives – yet there are many who, unfortunately, find themselves no longer able to work due to a serious illness or accident. What would happen to your household finances if this happened to you and/or your significant other? This Christmas, one way to check this aspect of your financial protection is to review any income protection or critical illness cover (CIC) policies – to make sure they are still up-to-date and cater to your needs.
It may be that you do not have either/both but your needs have changed. Perhaps you now see a situation where a replacement income – or lump sum – would be very important if you suddenly could no longer work. In which case, do not delay in doing some research and discussing with a financial adviser. Most of us cannot anticipate or prevent tragedy, but you can act early to lower the financial impact on you and your loved ones.
A word on estate planning
Often, those who think about life insurance and similar policies forget about the impact this can have on an inheritance tax (IHT) bill. In particular, a payout from a life insurance policy is likely to be deemed part of your estate when you die – unless it is correctly placed within a trust. This can have the terrible effect of reducing the amount your loved ones expected to receive – maybe even putting them in financial difficulty. Here, make sure you seek financial advice to integrate your protection policies appropriately within your wider financial plan.
Conclusion & invitation
If you are interested in discussing your own financial plan or protection strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585