No one wants to think about becoming too ill or injured to work. However, considering ‘what if?’ is an important part of financial planning to ensure security.
If you don’t have any existing cover or if you don’t already have financial protection insurance in place or your circumstances have changed since taking out a policy, there are three key protection insurance options to consider.
We often think ‘it won’t happen to me’ when imagining becoming critically ill or involved in an accident, but planning for such occurrences can provide peace of mind. Thousands of Irish people don’t have any sort of financial protection, potentially leaving them vulnerable to financial shocks that are out of their control.
If you’d struggle to maintain your lifestyle if your income were to stop, it’s worth weighing up the pros and cons of different financial protection insurance product that are available.
- Income protection insurance policies
Income protection can reduce risk and provide you with a reliable income should you not be able to work due to illness or an accident.
- It will pay out a portion of your regular salary, up to 75%, less any social welfare payments each month.
- It’s a policy that can ensure your essential outgoings are covered whilst you get back on your feet.
- Remember if you are self employed you have NO social welfare to fall back on!
It will begin to payout after a deffered period, which varies depending on the product you choose. This can be several weeks or months. As a result, you should ensure you have an emergency fund or other sources of income to fall back on during this time.
Income protection policies will continue to pay out long term until you’re able to return to work, retire or the policy term ends. This type of policy can be used to provide a safety net for employees.
Critical/Serious illness cover
First, rather than paying a regular income, critical illness cover pays a single lump sum. In some cases, this can be useful, but in others, a regular income would be preferable.
The lump-sum can be used how you wish, from paying essential outgoings to adapting your home if necessary. Second, critical illness cover won’t pay out in all circumstances.
You must be diagnosed with an illness that is listed in your policy. The extent of illnesses covered will depend on individual providers and policies.
Life insurance policies
Finally, if you have dependents, life insurance may be worth considering.
This is a financial protection product that will pay out a lump sum on your death. No one wants to think about passing away, but extra cover life insurance can provide you with peace of mind. It can provide financial security for loved ones during a time that is already difficult.
It could ensure they’re able to pay the mortgage, meet school fees, retirement income and provide the financial security to take time away from work if needed.
What should you consider when choosing a financial protection product?
It’s not just the type of product you should consider either.
Here are five other aspects to consider in order to select a financial protection product that’s right for you.
- Existing cover
If you already have some form of cover in place, you should review these first. This may be a policy you’ve taken out in the past or cover that is offered through your employer. Any further policies you choose to take out should complement existing ones.
- Deferral period
If you choose to take out income protection, the deferral period is important. The longer the deferral period, the lower the premiums will be. When weighing this factor up you should consider the amount of sick pay your employer offers, how long sick pay would last, and what financial safety net you have in emergencies.
- Level of cover
This will involve looking at your lifestyle and goals. If you choose critical illness cover, what lump sum would provide you with peace of mind? How much would you need to receive from income protection to meet essential outgoings? The higher the level of cover, the more the premiums will be.
Often we find that premiums for financial protection products are lower than clients expect. But the exact cost will depend on numerous factors. This will include those focused on the product, such as the level of cover and deferment period, and a client’s health and lifestyle.
- Wider financial plan
Financial protection is a product that can provide reassurances that your financial future is secure even if the unexpected happens. However, other aspects of your financial plan should play a role in this too.
Contact Anthony to discuss your financial situation and whether financial protection would be appropriate for you.
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