Author: Stephen Phillips, 31 December 2007.
Leading independent financial adviser Alan Boswell & Company considers the need to review life insurance and other personal protection policies as the New Year commences.New Year is often a time for thinking about long term
financial plans and it is a good opportunity to ensure that your
life insurance and
personal protection arrangements are adequate.
Changing Financial Circumstances
Nobody knows what the future holds, but failure to put simple
life insurance in place can result in catastrophic financial consequences. Having inadequate
life cover can be almost as bad, because its existence can lull you into a false sense of security.
So it makes good sense to take a few minutes out to ensure that the current level of
personal financial protection reflects your circumstances as they are likely to be throughout the coming year.
For example, do your
life insurance and
income protection arrangements truly reflect your current pay package – or that which you might have by the end of this year? It can be all too easy to forget to increase your
life insurance cover when you receive a pay rise. But once you and your family become accustomed to a level of income, it can be very difficult to readjust. The death or long term illness of a breadwinner could result in real hardship if there is insufficient
life insurance in place to make up their income.
It is not just your income that is a factor. Perhaps your borrowings have risen during the past year – or may be due to do so during 2008. This could be an increased mortgage, or as the result of unsecured borrowings such as credit cards. Either way, the capital and interest should be insured so that on your death or incapacity, they are covered.
If you have prospects of a promotion or pay increase during the next year, it could be a good idea to arrange additional cover now. Premiums for
personal protection policies are usually age-related so it pays to insure before your next birthday!
How much life insurance is enough?There are no hard and fast rules about the level of life insurance cover you should have. However some guidelines might be as follows:
- Your debts should be insured for at least the outstanding balance plus the interest that may be due for a period of up to six months while issues are resolved, and to cover any early repayment penalties that may apply;
- You should have enough life insurance to provide a sum for your family to live on for as long as necessary - at least ten times your annual income as a lump sum is a good starting point;
- You should also have income protection insurance to cover at least two thirds of your income; more if possible, in the event of illness or injury, for at least two years but ideally for much longer;
- It is also a good idea to have critical illness cover that pays out if you are diagnosed with one of a list of major illnesses, to cover the additional costs associated with such a period of incapacity.
And don’t forgetIt is not just the main breadwinner whose absence could cause severe financial embarrassment. If a carer or secondary earner was to be incapacitated or should die, not only will the family income suffer, but there could also be additional costs to be covered, such as child care, house cleaning, cooking and so on. Even those who are not “economically active” make a major contribution to the family financial state.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please telephone 01603 218000 to speak to an independent adviser or complete the enquiry form.
Alan Boswell Insurance Brokers Limited, Alan Boswell Insurance Services Limited and Alan Boswell & Company Limited are authorised and regulated by the
Financial Services Authority.
