3 important reasons to properly protect your financial plan

You’ll probably work hard for many years to build your wealth and achieve your long-term goals.

You may be investing for a comfortable retirement, saving to buy a home, or securing a nest egg to leave to your loved ones. Whatever your goals, having a clear strategy can give you a greater sense of control and confidence. Yet an unexpected event could jeopardise your plans.

So, one important part of your financial plan is to be prepared for unexpected shocks that may hamper your goals – ensuring you have the right cover in place should never be an afterthought.

There are a variety of ways you and your family could benefit from financial protection. Read on to find out three important reasons to take out protection now.

1. Protection can help cover household expenses if you’re too sick to work

What would happen if you were injured or fell ill and were unable to work for an extended period? This could prove incredibly harmful to your finances, especially if you’re the main breadwinner in your household.

Hopefully, you’d have an emergency fund that you could use, but it may not last as long as you need. Plus, although you’re legally allowed to claim up to 28 weeks of Statutory Sick Pay (SSP), in the 2022/23 tax year the maximum SSP sum you could claim is £99.35 a week.

This is unlikely to be enough to maintain your lifestyle, especially if you face additional expenses due to your illness.

Without enough money to live on, you might have to resort to use your savings to help ends meet, which could harm your financial goals.

Income protection could save a lot of stress. A policy will make regular monthly payments, which will usually continue until you’re able to go back to work or retire. This should enable you to relax and focus your energies on regaining your health, instead of worrying about money.

Generally, the policy will pay out a percentage of your usual salary and can be used to help you meet financial commitments if you become ill or involved in an accident.

Equally important, an income protection plan could give you access to rehabilitation services that might help you return to work sooner.

2. Critical illness cover could provide invaluable peace of mind to you and your family

Every year thousands of people in the UK are diagnosed with a critical illness.

If you were diagnosed with an illness or experienced a stroke or heart attack, critical illness cover will pay out a lump sum on the diagnosis of an illness that is named in the policy.

You can choose the level of cover you’d receive to fit your lifestyle and commitments. We can help you understand which policy might be right for you and assist you in avoiding paying expensive premiums on insurance that isn’t what you expected.

The money from critical illness cover could buy you some breathing space and allow you time to come to terms with the news without having to worry about immediate finances.

Alternatively, you could use the money to pay for private medical treatment, or to buy medication not available through the NHS. It might also help you repay your mortgage or other debts, modify your home if necessary, or provide an income.

The cost of the premiums will depend on factors such as your age, medical history, and risk associated with your job.

Ultimately, protecting yourself against the potential for unexpected healthcare expenses could be essential to preserving your financial wellbeing.

Another option to consider is buying private medical insurance (PMI). This would cover costs of private healthcare, including diagnoses, treatment, and everything in between.

While this only covers healthcare costs, having access to private healthcare when faced with potentially devastating news may be useful.

Many employers provide PMI as an employee perk, and often includes family members, so it may be worth checking to see if this is the case for you.

Also, PMI policies can vary enormously between providers, so be careful to read the small print. Alternatively, speak to us and we can help you understand exactly what you are buying before you sign on the dotted line.

3. Life insurance could prevent your family from facing financial ruin

While it may be uncomfortable to consider, have you paused to think about how your family would maintain their current lifestyle if you were to pass away in the near future?

With a life insurance policy in place, your family could receive a payout in the event of your death.

The money could help them to:

• Keep up with mortgage repayments so they won’t have to uproot their lives and move house if you passed away
• Cover living costs such as school fees, travel, and day-to-day expenditure
• Cushion the blow of an Inheritance Tax (IHT) bill.

As well as providing your family with crucial financial support on your death, life insurance can also play an important role in protecting your legacy from IHT.

While there are opportunities within the current IHT rules to minimise or mitigate a tax liability, there may be circumstances where it’s not possible, appropriate, or cost-effective. This is where life insurance can help.

Insuring against a likely IHT liability could allow you to pass on all your accumulated wealth to loved ones.

It’s essential that you write the life insurance policy in trust, to be paid to a named individual. Failing to do this would mean that the payout would be added to your estate and increase the IHT liability – negating any benefit you hoped to achieve.

We can help you understand how financial protection fits into your life goals

When the unexpected strikes it can be devastating. Having the right financial protection in place should mean that money worries are one less thing to deal with.

The cover you need will depend on your own financial situation and circumstances. Whether you want peace of mind in unexpected circumstances or to mitigate tax liabilities, we’ll help to ensure you have the right protection in place.

Get in touch

If you would like to discuss your financial plan, review your protection requirements, or mitigate IHT, please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.