Financial protection is the cornerstone of personal financial planning and be broken into 4 key components.
Life Insurance - Income Protection - Mortgage Protection - Serious Illness Cover
Life Insurance is the foundation stone of financial protection. As the old saying goes there are only two certainties in life, death, and taxes. Life Insurance or life cover as it is sometimes referred to will pay a lump sum into your estate when you die. It may be used to replace lost earned income, pay off outstanding debt including funeral costs, set up a trust fund for the next generation or pay inheritance tax.
For business owners life insurance may very well secure the future of a business if a business insurance protection plan is in force when a key employee, partner or company director dies.
It's even possible to get additional tax relief using a Pension Term Assurance policy. This is simply a life insurance policy that may be put in place if you meet the criteria to put a personal pension in place. The cost of the cover is reduced once tax relief is applied at the policy owner's marginal tax rate.
Income Protection should form part of every financial protection portfolio. By definition, an Income Protection policy will replace up to 75% of your income if you are unable to work because of an accident or illness. The plan will continue to provide you with an income until you recover and return to work or, you reach retirement age.
You financial protection portfolio should include income protection if you have unprotected income either because your employer does not have a scheme in place or you are self-employed. Even if you have sick pay benefits they may be payable for a limited period of time after which you may need to revert to Social Welfare payments and as a result at a reduced level of income.
If you have medium to long term debt such as a mortgage, then an income protection plan will pay your mortgage or loan until you recover or pay down the loan.
Income Protection is tax deductible at your marginal rate so it makes so much sense it almost a no brainer.
Mortgage Protection for most people is a key component of their overall financial protection provisions. Lenders insist in most cases that a mortgage protection policy is assigned to them as part of the loans terms and conditions. A mortgage protection may be waived in certain circumstances but for most people arranging a mortgage protection policy is part and parcel of making a mortgage application.
A mortgage protection is quite simply a life insurance policy which is assigned to the lender as security.
Remember, it is assigned to the lender so it protects their interests not yours. Many clients feel obligated to take the policy arranged by the lender and in most cases this is a mistake.
Before you arrange your mortgage protection policy you should seek independent advice from a Financial Broker. Doing so will save you money over the term of the mortgage but more importantly will ensure that the policy protects your interests and not the lenders.
Specified Serious Illness Cover
Serious Illness Cover pays a tax free lump sum if you are diagnosed with a serious illness as specified on your policy documents and you survive for 14 days. There are 5 main providers in the Irish market.
Ideally your financial protection portfolio should include serious illness cover. However this is not a cheap product so take some advice beforehand.
Buying Serious Illness Cover online may seem like a good idea but it is full of hazards, most notably at the underwriting stage.
Remember, failure to 'disclose any material facts' that may affect the terms under which cover is offered may nullify the policy and a claim might not be paid by the insurer.
All five providers are financially strong and believe that their suite of financial protection policies are the best in the market.
However, just like the ATP tennis rankings they can't all be number 1.
The Serious Illness cover marketplace is a competitive one and whilst any of the plans available will provide a decent level of cover not all serious illness plans are created equal so it's important to take advice before buying a plan.
It not just all about price. A Financial Broker will compare the definition of the illnesses covered, the claims record of the provider and using hard facts and their own experiences of dealing with the providers recommend the plan most suitable to you.