You may think of financial protection products as something that’s removed from your overall financial plan. But they are an essential part of keeping you on track. Even the best-laid plans can go off course and many outside influences could affect your financial situation. Protection can act as a capital injection at times when you need it most.
Even carefully crafted plans can be hit by unexpected events and outside influences. Thinking about how these could affect you now, means you’re able to put in place a safety net that provides financial security for your future and plans. Becoming ill, for example, doesn’t have to mean you’re unable to support your children through university if you have the right protection in place.
Protection can provide certainty and security when you need it most. Among the circumstances where financial protection can keep you moving towards goals are:
Being involved in an accident
Accidents occur every day. Fortunately, most don’t cause long-term effects but some can mean taking a long time off work or have a life-changing impact. If you’re unable to work, it could affect your finances, and therefore plans, in the short, medium and long term. If you’d struggle without a regular income, you should consider how financial protection could act as a safety net.
Income protection can provide a portion of your salary, usually around 70%, if an accident or illness means you’re unable to work. This should mean you don’t have to worry about immediate financial concerns, such as paying bills, and allow you the time to get better. Often, income protection will continue to pay out until you’re able to return to work or retire. One important thing to note here is that income protection will usually have a deferred period. You should ensure your employer’s sick pay or your own savings are enough to cover this period.
On the diagnosis of a critical illness
Could you afford to maintain your lifestyle if you were unable to work for a long period of time? Critical illness can affect us at any age and can have a significant impact on aspirations. It may mean you need to make adjustments to your current employment and, in some cases, could mean you’re unable to work at all.
Critical illness can be difficult to come to terms with. Worrying about money can make it even more challenging. A protection policy paying out here can give you the time needed to consider adjustments where necessary and, most importantly, recover. Critical illness cover will pay out a lump sum on the diagnosis of specified illnesses.
If your income is essential for your family’s security, you may be worried about how they’d cope without you. Financial protection can’t help with the emotional stress a death causes but it can relieve some of the worries around money and give families time to grieve.
Having the right financial protection can mean your hopes and dreams for loved ones are still possible even if you’re not there. It could, for instance, help pay school fees for children, support grandchildren getting on the property ladder and ensure your family doesn’t have to give up their home. It’s not a situation anyone wants to think about. But effective planning can provide a safety net for those you care about the most. If this is a concern for you, it’s worth looking at life insurance policies.
Visualising the benefit of financial protection
Understanding how unexpected obstacles could affect your circumstances and plans can be difficult. Working with a financial planner can help you visualise the impact and see how an injection of capital would help at these points.
Modelling your current finances and making assumptions about the steps you’ll take and other areas, such as investment performance, can help you see how you’ll achieve goals if everything goes to plan. But cashflow modelling also allows you to model concerns you may have. For instance, what would happen if you were forced to give up work five years earlier than expected due to illness? Or would your family still be financially secure if you were to pass away?
By modelling these scenarios you’ll be able to see where a shortfall may occur. Your capital and assets may mean you’re still able to achieve aspirations, even when things go off course. But, for many people, a capital injection is essential if they’re still to achieve goals. Through using cashflow modelling, we can demonstrate the benefit of having the right financial protection in place for you with the right level of cover. It can give you peace of mind that, even if the unexpected should happen, your finances can remain on track.
If you’re worried about how your lifestyle and aspirations could be affected, please get in touch. We’re here to help manage your current finances and put safeguards in place to protect your plans where necessary.
Important notice: Life cover (non-investment) and income protection – The plan will have no cash in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse. Critical illness plans – The policy may not cover all definitions of a critical illness. For definitions of illnesses covered please refer to the Key Features and Policy Documents.