Protecting against risks

Sometimes people ask me what their greatest priority should be in terms of their financial planning. Everyone’s circumstances are different and so priorities will vary, but I have always believed someone should deal with the ‘what ifs’ before doing anything else in terms of planning a more comfortable future. In recent months I have been more aware of this because of the news, client’s circumstances and indeed personal events. I believe there are three key ‘what ifs’ that most of us need to consider and these are:

  • Death
  • Sickness
  • Loss of earnings

Whatever the risk, there is usually an insurance to cover it. Often we make choices about whether and what to insure and quite often our decisions can be very strange indeed. Clearly if we drive, then the car has to be insured by law, but besides that, ask yourself what else you insure and the potential financial implications if you didn’t? Mobile phone, boiler breakdown, freezer contents, extended warranty on the TV, laptop virus, our pets, cancellation of an event or holiday. If these events happened are they inconveniences or financial catastrophies? The bizzare thing is, many of us insure these specific items and yet don’t insure the one thing that enables us to pay for them; our income.

With death, it’s the loss of income of the deceased that is often an issue – so the risk is to their loved ones. With sickness it’s a potential loss of income. If you are eligible for Statutory Sick Pay (SSP), that will only provide about £400 p.m. and only for a period of time. If you are made redundant, then the loss of income is immediate and the impact can be significant. Does your household have other income or more than one person working for the same employer? I saw a family of 5 on the news last month ALL of whom worked for Thomas Cook.

Death – Ask yourself if someone will struggle financially if you are no longer providing an income? Spouse, children, dependent relative. Do you have liabilities? Mortgage, Credit Cards, payments to an ex-spouse school or university costs? If you are employed, there may be ‘death in service’ at work, but this may be insufficient. The solution? You could provide a lump sum or an income on your death. A 30 year old covered for 20 years might pay just over £5 a month for £100,000 lump sum benefit. A 40 year old just over £8 a month for the same cover.

Sickness Cover – This can be varied. The provision of an income in the event of illness is for me the most important, but lump sums can be provided, private medical cover and of course if your on holiday, ill and your travel company goes bust, then travel insurance might have been a good idea. Maybe an employer will provide something – ask the question. If you have none or just SSP then you could think of Income Protection cover. A 30 yer old could receive £1,000 a month benefit after 1 month of illness, payable for 2 years as a claim for just £9.76 p.m. (office based job).

Losing your job – You could have insured against this eventualtility with unemployment cover. £1,000 a month benefit for 2 years (unless work is found before) would cost from £16.20 a month.

If you are unsure about your circumstances, might I suggest you look at a bank statement and all the items in the ‘out’ column. Ask yourself whether they would still have to be paid if you died, were ill or lost your job? These days I often compare the cost of protection cover to the price of a coffee; it usually puts things in perspective.

Please be aware that the above does not constitute financial advice. We recommend that you consider your existing investments, pensions and financial arrangements and then take advice.

Author: Phil James, Grosvenor Consultancy Ltd

There are advantages and disadvantages to using all of these strategies and they depend on individual circumstances so don’t take action without seeking competent advice. Tax rules, rates and allowances are all subject to change. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise,  you may not get back the full amount you invested and past performance is no guide to future performance.

Comments are closed.