Protection Planning
The majority of the time spent advising, should absolutely be spent maximising return on capital by reducing costs and tax. Often overlooked, though, is the need to protect your financial position in case something unexpected happens. It is so overlooked because people often assume that it won’t happen to them and certainly don’t want to think about death and ill health. Ironically once you have protected against the unknown, you can largely forget this planning, returning to it only when circumstances change.
The best way to approach this problem is to first think through the financial situation if you were to lose your work due to long-term ill health. Your company may have some form of income protection in place and this may be enough to cover your expenditure until you recover or retire. If not then you should look to protect yourself with an income protection policy that will pay you a tax-free income, again until recovery or retirement.
The second issue to think about is the financial situation of your dependents in the event of your death. If you are the main earner, look at whether your company covers your death through ‘death-in-service’. This is often structured as a tax-free lump sum and a multiple of your salary. The earlier you are in your career the less likely this policy is to cover you. It is fairly standard to be covered for 4x your annual salary, and this money will obviously not last, unless you die close to retirement.
The longer you live, the less exposed your family are and so a good solution is Family Income Benefit. This pays a tax-free income (instead of a lump sum) for a set period. This is a cheaper way to buy life cover as the insurance company’s exposure reduces over time.
It is also worth making sure that any debts such as mortgages are separately repaid on death, so that the surviving family doesn’t need to maintain the loan repayments.
The last type of protection is the least common, Critical Illness. This type of cover pays out a tax-free lump sum on diagnosis of one of a set number of serious conditions. With modern medical advances, many serious conditions are survivable and so this cover makes sure that a payment is made (for instance to clear a mortgage), allowing more breathing space to recover from one of these conditions.
We advise on protection planning for Altor clients in our Core Service. Clients in our Discounted and Family Services are referred to external professionals.
Nothing on this website or its links constitutes a personal recommendation; the information contained is designed to be informative but not to be relied upon as individual circumstances could affect the relevance of this guidance.