A MyBump2Baby we are proud to be connecting families with trusted financial advisors throughout the UK with our new family protection campaign. Today we have an article from one of our financial advisers . Our financial advisers offer advice on pensions, savings and investments and family protection.
I am invincible!
I admit it, that is how I have approached life. I’m lucky, so far, I have got away with it.
But we all know someone who wasn’t as lucky. We’ve all heard about the friend or relative who had to have a couple of months off work or someone who has been diagnosed with a serious illness, or worse, someone who died suddenly.
Some years ago, my best friend and colleague of 31 years passed away having lost the battle with Prostate cancer. Last summer, another dear friend was diagnosed with an inoperable cancer, despite all the very best treatments, his time is unfortunately limited.
But you know what, both these guys had been sensible and invested throughout their lives to ensure, that should the worst occur, at least their nearest and dearest would be financially looked after.
They had (or have) life insurance to cover their mortgages, one also had critical illness which paid out on a diagnosis of cancer whilst the other has good private health cover and death in service with his employer. They’re both of an age that their pensions can be passed on to their beneficiaries, tax free. Their families will not have to worry about money, they will have time to grieve their loved ones.
Importantly, they both have or had wills in place that outlined their wishes and set instructions to their executors and trustees to distribute their assets.
See no evil, hear no evil, speak no evil.
I read a story recently in the newspaper about a young woman who took a test which would supposedly tell her if she had a likelihood of suffering dementia in her old age.
The results came back positive!
They showed it was highly likely that due to family history or some other reason, she will suffer dementia in her dotage…….and the stupid woman had the cheek to complain to the press!
I kept reading about how this test had ruined her life, she couldn’t sleep, she was depressed, whereas all I was thinking was how bloody stupid she was in taking the test in the first place!
It’s an average Stupid!
That said and without being too specific, there are a lot of calculators available online, produced by the NHS and various insurance companies that will indicate the statistical possibility of an individual not being able to work through illness, or being diagnosed with a serious illness and their life expectancy.
These calculators are based on averages, they are not personal, the only data you provide is date of birth, sex and if you’re a smoker.
But they do give food for thought.
I was playing around with one such calculator and was, frankly shocked by some of the results.
I’m 56, as is my wife. I know we probably drink too much, weigh too much and don’t exercise enough, but the calculator doesn’t! According to the online calculator I should check my will, pay my outstanding electricity bill and make sure my beneficiaries are primed!
Despite almost never having had a day off work with illness, there is over a 32% chance I won’t be able to work for 2 months or longer as my body degenerates prior to my retirement.
Apparently, I have a 1 in 20 chance of NOT making it to 65!
I jest, but it’s serious. I’m covered, so is my wife. If something happens to one of us the other isn’t going to have to sell the house and live in a tent. But my kids, how are they set?
Obviously, life expectancy and general health will depend on various inputs not measurable by a online questionnaire. Your lifestyle, career and family history will have a significant bearing on your actual outcome, but these calculators, based on statistics and actuarial information do make you think.
According to the insurance company LV, a heterosexual, non-smoking couple, aged 25 with a retirement planned for 65, have a 62% chance that one or the other of them will need at least 2 months off work due to illness before their chosen retirement date. There is a 24% chance one of them will be diagnosed with a serious illness and a 7% chance one of them will die before aged 65.
Most shocking perhaps, is the fact that there is a 67% chance that any of the above could occur before they reach retirement.
Let’s say young couple are smokers, LV calculate it’s a 33% chance that they’ll be diagnosed with a critical illness and a 15% chance of one of them dying before 65.
All in, there’s nearly an 80% chance one of them will die, be diagnosed with a serious illness or have to have 2 months or more off work through illness.
So, what are we going to do about it now we know there’s an outside chance we’re going to go all Monty Python and shuffle of this mortal coil?
If you read my last article ‘Financial advice, what is it, do I need it?’ you’ll know that I believe advice is personal and dependent upon your own circumstances. The advice to a young couple with a mortgage will be different to a middle-aged couple with grown up children.
Let’s go back to our fictional 25 year olds from earlier and call them Jack and Jill. We said they’re non-smokers and have a plan to retire at 65 even though under current UK pension legislation they won’t be able to claim their state pension until they are 68.
Looking at the results of their online test, we saw there was a 62% chance that either Jack or Jill would at some point have to take at least two months off work because of illness before they reached 65.
Imagine what that might mean to your finances. If Jill was suddenly unable to work through illness, could they live off Jack’s income. Would he be able to pay all the bills? Would they be able to keep up the rent or the mortgage? What if it wasn’t just 2 months off work, but 6 months or a year?
Let’s say Jill earnt £21,000 a year, taking home around £1495 a month after tax. If Jill was worried about paying her half of the monthly expenses, it should be possible to arrange income insurance that would pay her £1000 per month tax free if she was signed off work for about £9 a month.
The policy can be set up to start paying Jill after a certain period of illness, a deferred period. The longer the deferred period, the cheaper the policy. There are other factors and permutations, but as you can see for a fairly small cost, it is possible to ensure the bills can be met.
That same online calculator tells us there is a 24% chance that either Jack or Jill will suffer a serious illness.
Let’s assume its Jack who is worried about being diagnosed with a serious illness such as cancer or he’s concerned he might suffer a heart attack. We’ll assume Jack currently earns £30,000 a year, bringing home nearly £2000 a month after tax. He’s worried about how they would pay the bills and is looking for some peace of mind.
As a 25 year old, for a cost of approximately £17 a month, it’s possible to arrange a policy that would pay out a tax free lump sum of £50,000 if he was diagnosed with cancer, s, Alzheimer’s or suffered a heart attack.
This amount of money would be the same as his after-tax salary for just over two years. It would be a tax-free lump sum that could pay for any adaptions that might be needed to their property, go towards paying for a carer or be invested to provide an income.
(Please note, the illnesses covered vary by insurance company. If you are worried about a specific illness speak to your financial adviser to ensure the proposed policy provides the cover required.)
Critical illness insurance will pay out a lump sum on diagnosis of a covered illness. By itself it would not necessarily pay out on death, however it can be linked to Life Insurance to ensure complete cover.
Going back to the online calculator, there is, statistically, a 7% chance that either Jack or Jill will die before they reach 65.
Staying with Jack, if he wanted life cover of £175,000 to pay off the mortgage and leave a little left over for Jill in the event of his death another £8 a month should cover it.
From the above examples we can see that insurance can be a very flexible option. Arranging insurance cover can be a straightforward exercise, but there are a few things we need to understand.
When we get a quote for insurance, the insurance company is relying on our honesty and quoting us on the information we provide. It is important to understand that a quote can change based on new information. Every policy has to be put to an insurance underwriter who decides whether or not to commit his company to the quoted risk.
Life insurance might require you to undergo a medical. Income insurance will want proof of earnings. The insurer will reserve the right to speak to your doctor. If you have a pre-existing condition that you do not disclose at the application stage, the insurer might later reject your claim. The insurer won’t pay out if you cause yourself own harm or wilfully cause your own death.
When we list the reasons why an insurer could possibly change its quote or not honour your claim it’s easy to understand why some people consider insurance as a waste of time and have the perception that it is unlikely to pay out.
However, the industry as a whole pays out something like 88% of all claims made on income protection policies and over 91% for critical illness claims and nearly 98% for Life policy claims. (Association of British Insurers 1.5.19)
Last Will & Testament. Get a will. Get a will. Get a Will !
This is an important area of advice, all too often ignored. It is not something I am qualified to write or comment on. But I would urge you to get a will and make sure it is up to date. If you had a will, then got married, your will is no longer enforceable, you could die intestate.
If you are co-habiting with your partner and they die, you have no automatic right to any of their assets upon their death.
Think about it, if you are living in a property owned by your partner, the executors of their estate could evict you legally and you would have no comeback. If you have a joint bank account, it is frozen until the estate is settled. If you are in rented accommodation in joint names, you are still liable for the remainder of the contract.
If your partner dies without a will, they die Intestate. Their estate is settled in a pre-ordained fashion. You have no automatic right to any of your partners assets.
Do you get on well with the in-laws or your partners family because its them who are likely to be appointed executors and will have a say in how you are treated or any assets are distributed.
Whereas, if you are at the stage that you are planning your future together and you’ve decided that if you passed away, you would want your partner to have your old CD collection as well as the proceeds of your savings account, have a Will drawn up.
With a Will, your wishes are all there in black and white.
Whenever your circumstances change, your Will needs to be updated. Get married, split up, have another child…. Consider updating your will.
Back to protecting our loved ones.
To summarise, Insurance is available, it will cost but doesn’t have to be expensive, it can be flexible, and it can give you peace of mind.
It’s that one thing that we all spend money on hoping we never use!
Insurance for the young is cheaper than for us oldies. For instance, Life insurance of £100,000 for a 25 year old is half the cost of arranging the same cover for a 45 year old and a third as much as for a 55 year old.
I’ve only scratched the surface here to give an indication of what is available and demonstrate a rough idea of cost. I have tried to give an idea of how flexible and adaptable Insurance can be.
Think of Insurance as part of your assets. You might have life insurance, but if you move and take on a larger mortgage, is it enough? you don’t necessarily have to cancel your existing policy, it might be cheaper to look at adding a smaller policy to what you already have.
But we can cover that another day!