The coronavirus (COVID-19) pandemic has touched virtually every aspect of our lives and is having a widespread impact across all aspects of financial life, including retirement plans.
More than a fifth of UK households live in privately rented accommodation. The Government has introduced measures to protect renters affected by coronavirus (COVID-19). This radical package of measures protects renters and landlords affected by coronavirus – and with these in force, no renter in either social or private accommodation will be forced out of their home.
There is a growing unease about the economic fallout of coronavirus (COVID-19), with many businesses laying off contractors and putting staff on extended leave, as well as natural worries about contacting the disease.
What this crisis has shown is that being unable to work can quickly turn our world upside down. No one likes to think that something bad will happen to them, but if you can’t work due to a serious illness, how would you manage financially? Could you survive on savings or sick pay from work? If not, you may need some other way to keep paying the bills – and income protection insurance is an option to consider.
You might think this may not happen to you, and of course we hope it doesn’t, but it’s important to recognise that no one is immune to the risk of illness and accidents. No one can guarantee that they will not be the victim of an unfortunate accident or be diagnosed with a serious illness. This won’t stop the bills arriving or the mortgage payments from being deducted from your bank account, so forgoing income protection insurance could be tempting fate.
Cover monthly payments
Income protection insurance is a long-term insurance policy that provides a monthly payment if you can’t work because you’re ill or injured, and typically pays out until you can start working again, or until you retire, die or the end of the policy term – whichever is sooner.
Keep your finances healthy as you recover from illness or injury:
Generous sickness benefits
Some people receive generous sickness benefits through their workplace, and these can extend right up until the date upon which they had intended to retire. However, some employees with long-term health problems could find themselves having to rely on the state, which is likely to prove hard.
Tax-free monthly income
We’re already seeing, as a consequence of COVID-19, how many people are finding it a struggle financially without a regular income. Even if you were ill for only a short period, you could end up using your savings to pay the bills, but how long would they last? In the event that you suffered from a serious illness, medical condition or accident, you could even find that you are never able to return to work. Few of us could cope financially if we were off work for more than six months. Income protection insurance provides a tax-free monthly income for as long as required, up to your nominated retirement age, should you be unable to work due to long-term sickness or injury.
Profiting from misfortune
Income protection insurance aims to put you back to the position you were in before you were unable to work. It does not allow you to make a profit out of your misfortune. So the maximum amount of income you can replace through insurance is broadly the after-tax earnings you have lost, less an adjustment for state benefits you can claim. This is typically translated into a percentage of your salary before tax, but the actual amount will depend on the company that provides your cover.
Self-employment
If you are self-employed, then no work is also likely to mean no income. However, depending on what you do, you may have income coming in from earlier work, even if you are ill for several months. Self-employed people can take out individual policies rather than business ones, but you need to ascertain on what basis the insurer will pay out. A typical basis for payment is your pre-tax share of the gross profit, after deduction of trading expenses, in the 12 months immediately prior to the date of your incapacity. Some policies operate an average over the last three years, as they understand that self-employed people often have a fluctuating income.
Cost of cover
The cost of your cover will depend on your occupation, age, state of health and whether or not you smoke. The ‘occupation class’ is used by insurers to decide whether a policyholder is able to return to work. If a policy will pay out only if a policyholder is unable to work in ‘any occupation’, it might not pay benefits for long – or indeed at all. The most comprehensive definitions are ‘Own Occupation’ or ‘Suited Occupation’. ‘Own Occupation’ means you can make a claim if you are unable to perform your own job. However, being covered under ‘Any Occupation’ means that you have to be unable to perform any job, with equivalent earnings to the job you were doing before not taken into account.
You can also usually choose for your cover to remain the same (level cover) or increase in line with inflation (inflation-linked cover):
When you take out cover, you usually have the choice of:
Making a claim
How long you have to wait after making a claim will depend on the waiting period. You can typically choose from between 1, 2, 3, 6, 12 or 24 months. The longer the waiting period you choose, the lower the premium for your cover will be, but you’ll have to wait longer after you become unable to work before the payments from the policy are paid to you. Premiums must be paid for the entire term of the plan, including the waiting period.
How can we help?
To find out more, please contact A1 Financial Solutions on 0131 347 8855 or email info@a1-financial.com – we look forward to hearing from you.
Since the outbreak of coronavirus (COVID-19), the number of people seeking to write new Wills has risen by over 30%, according to The Law Society. Understandably, the current situation is causing angst among people, particularly elderly and vulnerable clients who have been self-isolating. It’s estimated that more than half of British adults have not made a Will.
The coronavirus pandemic has made more people think about just how crucial it is to make a Will and ensure it is kept up to date. Everyone should have a Will, but it is even more important if you have children; you own property or have savings, investments, insurance policies; or you own a business. Your Will lets you decide what happens to your money, property and possessions after your death.
Make sure your wishes are clear
Making a Will and keeping it up to date is the only way you can ensure that when you die, your wishes are clear. If you die with no valid Will in England or Wales, the law will decide who gets what. If you have no living family members, all your property and possessions will go to the Crown.
If you make a Will, you can also make sure you don’t pay more Inheritance Tax than you legally need to. It’s an essential part of your financial planning. Not only does it set out your wishes, but die without a Will, and your estate will generally be divided according to the rules of intestacy, which may not reflect your wishes. Without one, the state directs who inherits, so your loved ones, relatives, friends and favourite charities may get nothing.
“Since the outbreak of coronavirus (COVID-19), the number of people seeking to write new Wills has risen by over 30%”
Source: The Law Society
Cohabitants
It is particularly important to make a Will if you are not married or are not in a registered civil partnership (a legal arrangement that gives same-sex partners the same status as a married couple). This is because the law does not automatically recognise cohabitants (partners who live together) as having the same rights as husbands, wives and registered civil partners. As a result, even if you’ve lived together for many years, your cohabitant may be left with nothing if you have not made a Will.
A Will is also vital if you have children or dependents who may not be able to care for themselves. Without a Will, there could be uncertainty about who will look after or provide for them if you die.
Peace of mind
No one likes to think about it, but death is the one certainty that we all face. Planning ahead can give you the peace of mind that your loved ones can cope financially without you, and at a difficult time it helps remove the stress that monetary worries can bring. Planning your finances in advance should help you to ensure that when you die, everything you own goes where you want it to. Making a Will is the first step in ensuring that your estate is shared out exactly as you want it to be.
If you leave everything to your spouse or registered civil partner, there’ll be no Inheritance Tax to pay, because they are classed as an exempt beneficiary. Or you may decide to use your tax-free allowance to give some of your estate to someone else or to a family trust. Scottish law on inheritance differs from English law.
Passing on your estate
Executors are the people you name in your Will to carry out your wishes after you die. They will be responsible for all aspects of winding up your affairs after you’ve passed away, such as arranging your funeral, notifying people and organisations that you’ve died, collating information about your assets and liabilities, dealing with any tax bills, paying debts and distributing your estate to your chosen beneficiaries.
You can make all types of different gifts in your Will – these are called ‘legacies’. For example, you may want to give an item of sentimental value to a particular person, or perhaps a fixed cash amount to a friend or favourite charity. You can then decide who you would like to receive the rest of your estate and in what proportions. Once you’ve made your Will, it is important to keep it in a safe place and tell your executor, close friend or relative where it is.
Review your Will
It is advisable to review your Will every five years and after any major change in your life, such as getting separated, married or divorced, having a child or moving house. Any change must be by Codicil (an addition, amendment or supplement to a Will) or by making a new Will. Please contact A1 Financial Solutions on 0131 347 8855 or email info@a1-financial.com to find out more.