Insurance: The most critical part of any financial plan

There are 3 types of insurance that everyone needs. Life insurance, permanent disability, and critical illness cover. These are not should have, they are must-haves and without them no one’s financial planning is complete. These things only get more important as an individual takes on more responsibility throughout their life. Critical Illness and Total Permanent Disability cover are perhaps the most important. What would be the impact of being out of work due to illness? And what would you do if a car accident rendered you unable to physically do your job? Whilst no one likes to think it will happen to them, statistically, there is a fairly high chance something serious will happen to us all at some point that will take us out of work for some time.

Life Insurance

The value of life insurance cannot be overstated. Life insurance not only offers protection for your family and home in the event of your death but can also be used as an invaluable tool in your financial planning. Some people may think of life insurance as just another expense. The question you need to consider is would someone in your life suffer economic hardship if you were to die?

If you’re married and have young children at home who depend on your income, you have a clear need for life insurance. If you were to die, the loss of your income could cause immediate financial hardship. Even if one spouse is a stay at home parent and doesn’t bring in a formal paycheck, his or her death means that the surviving spouse will have additional expenses such as child care, cooking, and housekeeping – all necessary services for running a household. If your spouse or significant other depends on your income to keep the bills paid and to run the household together as a joint venture, then having the financial safety net of a life insurance policy is vital.

The loss of a loved one is an emotional and traumatic experience for any family. But not having enough money to meet immediate and ongoing living expenses, can make a very difficult situation even worse. Not only are the people you love grieving your loss, but they’ll now have added financial stresses to cope with.

Depending on their current financial resources and ability to get back on their feet both emotionally and financially, your loved ones could be forced to move to a less expensive home or community, forego education and career plans, and cut back on their quality of life. They may be even forced to take out loans to pay for your funeral and burial costs, as well as any outstanding medical or tax bills. If you’re wondering why life insurance is important, stop to consider the potentially devastating consequences of not having coverage to financially protect the people that you love.

Total or Permanent Disability (TPD)

Being insured in the instance that an accident leaves you unable to work is essential. No employer is going to keep paying for someone who can no longer perform the function they are being paid to do. Redefining your career due to a change in your situation is also not going to be easy and, in many cases, will be impossible. This could leave you at the mercy of

a state benefit system or the generosity of others. Existing outgoings such as mortgage payments or car financing will not simply stop either, so having this in place is a no brainer.

Critical Illness Cover

Much like TPD but more likely to be claimed against, critical illness cover will payout in the event that you are diagnosed with an illness that can be critical. The illnesses covered will vary depending on the insurance provider but in most cases, they will cover the most common ones such as cancer. The general rule of thumb is that critical illness cover should cover you for 5 years living expenses at a minimum, with many people increasing this amount to also give a budget toward medical care. With a policy like this in place, you could go directly to the best doctors at the best hospitals in the world without worrying about the size of bills that will rack up. This does not replace medical insurance though and is primarily to cover loss of income during your recovery and to ensure you can take the time to recover without financial worry.

WHAT POLICY AND HOW MUCH COVER DO I NEED?

Each person has different requirements and many factors should be considered including age, current liabilities, children and wealth.

A life insurance policy should cover all debts and future foreseeable expenses for your family.

Critical illness as a rule of thumb should be covered for an amount equalling a minimum of 6 months of living expenses. Typically after 6 months, you will either be back at work in some capacity or your life insurance will be paying out.

If you want to use a life insurance policy as a tax planning tool, you will first need to calculate your potential inheritance tax bill. 

Speak to one of our advisers today to know what options are best for you and your family.