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Protection planning

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Protection planning is about providing a level of financial security for people who depend on you financially, such as your family or loved ones. Most of us want to ensure that we and our families are financially secure if we were to become seriously ill or even die.  

Expert advice is invaluable, not only in choosing from the many different forms of protection available, but also from the many life assurance companies with similar policies, but many different options. Choosing the right cover depends upon your individual circumstances, as well as the type of protection required and more importantly what is affordable for your own budget.  

Life assurance will pay out a lump sum or fixed regular income either when you die (if a whole of life policy) or if you die within a specified term (term assurance). Some policies can be taken out for a specific purpose, such as to cover a mortgage and the level of cover may decrease (decreasing term) as the mortgage reduces.  

There are many other protection policies designed to protect an individual and his or her family, against other events such as serious or critical illness, permanent disablement, serious accident, the loss of income due to being unable to do your job and redundancy.  

Permanent health insurance

Regardless of whether you are single or have several financial dependents, if you are suddenly unable to work, your income will disappear completely and this could have a direct impact on both you and those around you. Permanent health insurance (PHI) is less well known than life assurance, but is just as important. In the event that you have an accident or contract a serious illness and are unable to work, PHI is designed to replace the income you lose. This is typically up to three-quarters of your gross income (in other words, approximately equal to your net take-home pay), minus any state benefits for which your situation might entitle you. 

This income is paid until retirement age or until the end of the policy term or until you are able to return to work, whichever comes first. Consequently, while you are rehabilitating or coming to terms with changes in your life, you can be reassured your financial position will be unaffected and that the bills will continue to be paid. This type of policy can be of particular benefit if you are self-employed or if your job does not come with any sick pay or group pension and protection scheme benefits (of which this form of cover can sometimes represent part of a benefits package). 

PHI has a reputation for being expensive; however, it comes with a choice of deferral periods and the longer that deferral, the lower the risk. Therefore, if cost is an issue, simply extend that deferral period beyond one month to perhaps three, six or even 12 months and the costs come down significantly. If you receive minimum sick pay from work or savings that can get you through the short term, this cover can be very cost-effective. 

Critical illness 

The third main type of protection that we are all encouraged to consider is critical illness cover. As the name suggests, this pays out an agreed amount if you become incapacitated or contract a serious illness. Critical illness cover pays out a lump sum when serious illness is diagnosed, but does not cover accident or injury. The objective is that you can then fund your rehabilitation and pay for changes you need to make to your lifestyle or adapt your living environment. 

For example, you may need to move house to be nearer your relatives or friends.  Alternatively, you may need to make changes to your house to add new facilities or accommodate new mobility requirements. Alternatively, you may simply want to give up worrying about work and money and make the most of your opportunities whilst you still can. Like PHI, critical illness can be just as beneficial and maybe even more so for single people with no dependents, as for those with a family. For those on their own, the income from such a policy may be all they have to fall back on in the event of such problems. 

Note: Critical Illness comes in many forms with many different definitions of what constitutes ‘critical’ (that is, under what circumstances the benefits will be paid).  

Therefore it is vitally important you discuss these options with a professional, so that you understand fully what you are getting for your money and most importantly, what is excluded. Simply looking for ‘the cheaper option’ in this particular scenario, might leave you with nothing if you do not read the small print.  

Private medical insurance 

Ensuring that you or your family have the appropriate insurance in place to make sure should the need arise, where there could be a need for you to bypass the waiting lists you can often endure within the NHS, you are in a position where your medical needs and expenses are catered for in a timely manner. 

Only expert independent advice can research the whole market, which ensures you find a solution that suits your particular circumstances, providing peace of mind at a price you can afford.

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Gary Richard Jones (trading as Chewton Financial Planning) is an appointed representative of The Whitechurch Network Limited which is authorised and regulated by the Financial Conduct Authority. Financial Services Register No: 190859 http://www.fca.org.uk/register.

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