Finding time in today’s busy world is a constant challenge. The demands of balancing work, family and leisure often do not allow the opportunity to plan or review personal finances.
There are three key areas that will help protect you and your family:
- Income replacement cover
- Critical illness cover
- Life assurance
Income replacement cover
Income replacement is a means of providing a tax- free income where, due to ill health (caused through accident or sickness), you are prevented from working for a number of months or even years.
Such plans generally provide cover between 50%-60% of your total gross earnings, less trading expenses, and will cover you being unable to carry on your own occupation. (This is preferable to policies that may not pay out if you can carry on any occupation.) A proportionate level of benefit may also be payable if you return to work part-time, assuming the reduction in earnings is because of your illness or injury.
After an agreed ‘deferred period’ of usually between four and 52 weeks when no benefit is payable – the length of which will determine the cost of the policy – income replacement cover will pay out an amount each month until you are able to return to work, the policy cessation date or you die.
All benefits payable at the point of claim are dependent on a range of factors, such as any continuing income and potential State benefits.
Critical illness cover
If you are diagnosed with a critical illness it could have a significant effect on your finances. Critical illness cover is an insurance policy that pays out a tax- free lump sum on the diagnosis of an illness as specified in the policy conditions.
These policies usually cover up to 30 different conditions, each of which may have a different impact on the claimant. There are seven core medical conditions which must conform to minimum definitive guidelines set out by the Association of British Insurers (ABI). These are cancer, coronary by-pass surgery, heart attack, kidney failure, major organ transplant and Multiple Sclerosis.
A financial need will be directly related to the condition suffered so an exact requirement cannot be calculated until after the event. However, a reasonable level of cover would consist of protection for the mortgage or loan; paying for long-term nursing care or medical expenses; or paying for alterations to your home or car.
A life assurance policy is a simple, affordable and effective way of protecting your family’s future by providing the peace of mind of knowing that if you die, your family will receive a tax free lump sum or income. The most typical forms of life assurance policy available are set out below:
- A Mortgage Protection Policy is designed to repay a capital and interest mortgage in the event of death.
- A Level Term Assurance Policy is designed to repay an interest-only mortgage or as protection for the existing family lifestyle.
- Family Income Benefit is designed to provide cover for a temporary need such as childcare or education costs. The policy would usually pay out a tax free annual income over the term of the plan.
- A Whole Life Assurance Plan is designed to pay out a lump sum in the event of death and is not restricted by a designated policy term. This is also the only form of life assurance that has an investment element built in to the contract.
Premium rates for term assurance policies can be offered on a guaranteed or reviewed-rate basis with the option to inflation link the policy annually also being available. For whole life policies, premiums are usually guaranteed for ten years and would then be subject to review depending on the investment performance of the fund/s selected.
If you are struggling with financial pressures you might consider contacting the Barristers Benevolent Association (BBA). It is also possible to donate to the BBA.
If the donation is gift-aided, a self-employed barrister who pays higher or additional rate tax will be able to claim the difference between the rate they pay and the basic rate of tax on the donation. https://www.gov.uk/donating-to-charity/overview.
This page was drafted in partnership with MPL Wealth Management. For more information about the information above, please contact Giles Garlick, Chartered Financial Planner on 020 7831 4711 or email@example.com