Protection advice is often considered to be the foundation of holistic financial planning, and without the right protection plans in place, clients might find all other financial plans could be less effective.
The right protection
When it comes to advising families about protection, the objective is to ensure that they have the funds to cope during difficult life events like a premature death, the diagnosis of a serious illness or having to take time off work due to an injury or illness.
One aspect many do not think about, or understandably do not want to think about, is the impact on their finances if their child becoming seriously ill.
In 2022 Royal London paid out more than £1.89mn, helping nearly 100 families who were dealing with the serious illness or death of a child. The average age of a child at the time of the claim was just 11.
As well as the emotional stress this puts parents through there are often significant financial concerns too, from changes in daily living costs and loss of earnings due to hospital visits and caring for a sick child.
In addition, in the same way that life cover is important in case one parent dies, it is especially critical if both parents were to die. Covering more than the mortgage is a good idea if they would like their children to keep the same lifestyle they already have.
Supplementing life cover with a family income benefit policy means if there is a death or serious illness a monthly cash payment would be paid out, allowing a sole parent to maintain a family’s lifestyle and remain in the family home. Should both parent sadly die, it gives guardians funds to take care of the children.
Whether you are recommending protection to clients for the first time, or reviewing their situation and existing arrangements, they need your advice to put in place cover that is right for them and their budget.
Questions to ask clients:
- If you were unable to work how long could you survive on current savings?
- Do you know how much government support you would get if you were too ill to work?
- Would you want your family to be able to afford the lifestyle they are currently used to if you or your partner died?
Trusts
According to global reinsurer SwissRe, 84 per cent of single own life policies written in 2022 had no specified direction for death benefits; in other words only 16 per cent of policies were put in trust or had specific beneficiaries named during the application.
This is of course a big problem because even if a client has a will it could take months to get a grant of probate (or certificate of confirmation in Scotland), which could delay the payment of a life cover claim. If a plan is in trust, the trustees can claim straight away without the need for probate/confirmation.
Writing protection plans in trust or making sure a policy has beneficiaries named to receive the death benefits is an essential stage in the protection advice process.
When a client’s protection plan is written into trust it can help make sure that if one parent dies, the other will have swift access to the proceeds, and if both die it can be held for the children until they are older.
