You are here: Home - Insurance - Understanding -

The protection products you need (in order of importance)

Written by: Anna Sofat
Confused by the various protection products on the market? Financial adviser Anna Sofat reveals the ones you really need to secure your family's future.

Hopefully, you will never need to use them, but if you do, financial protection products will prove to be the greatest investments you ever made. Nobody knows what is coming round the corner, and when things go wrong financial protection can help you and your loved ones to live fulfilling lives whatever the world throws at you.

Your security blanket should be built of a number of layers. You may not be able to afford them all, so I explain them in order of their importance.

Most important of all is your emergency cash buffer. Everyone should hold cash equivalent to 3 to 6 months’ income – double that for people in their 40s and 50s. If something does go wrong, you do not want the stress of having to borrow money straight away.

Next comes income protection insurance – the bedrock of your protection – which pays out an annual income in the event that you become incapable of work due to sickness. If you can’t work long term, then your entire financial security is threatened unless you take out income protection.

You may already be covered through your employer, so check what you already have before you buy. Insure between half and two thirds of your income, index-linked to at least age 60 or 65, depending on when your pension kicks in. Watch out for contracts which only pay out for two years – they may be cheaper, but if you need to claim you will regret it.

Next is life cover, which is more for your love ones than yourself. If you have a mortgage, definitely cover that. But if you have children, think how much your partner will need to raise them until they can fend for themselves.

Family income benefit, which pays an income stream rather than a single lump sum, can work out more efficient for people with children. Whichever you choose, insure your partner as well – joint policies don’t cost that much more. Again, check if you have death in service life cover through your workplace before buying.

Sign a nomination form to put your policy in trust – the insurer will have a form. Otherwise any payout will form part of your estate and could be liable for inheritance tax.

Finally, a nice-to-have is critical illness cover, which pays out cash sums in the event you develop certain illnesses. It means you won’t have to worry about work and can focus on getting better. But read the small print as certain conditions won’t be covered and pre-existing conditions will be excluded.

Whatever policy you are looking to take out, always check whether you can buy it through your employer. Even if they don’t give it you free, employers often sell protection at big discounts.

Anna Sofat is managing director of Addidi Wealth Management

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
payday loan
Payday firm in administration months after agreeing £34m redress deal

Payday lender CFO Lending has entered administration a few months after agreeing to pay £34m redress for ‘unfair’ consumer treatment....