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Guide to Family ProtectionFamily protection is more than just mortgages
When most people think about buying family protection in case they die or become seriously ill they are thinking about mortgage protection, but John Wilkinson, protection director of Aegon UK, says that is only half the story.
What about other loans, utility bills, council tax payments, food, clothing, tuition fees, fuel and travel costs and such like, or even a well-deserved holiday?
Mr Wilkinson says a good way of dealing with these costs is to have family protection that pays a monthly benefit, free of income tax, over a set period of years.
Alternatively he suggests working out the capital needed to cover income for, say 10 years, and insure it as level or decreasing-term cover. This could be useful as the amount needed to pay for commitments will reduce as each year passes.
Family protection can be arranged to pay a lump sum or a monthly benefit if your client dies or is diagnosed with a terminal illness during the period of years you have selected to cover. Critical illness cover can also be included to insure against specified illnesses such as heart attack, cancer or stroke.
Ultimately the amount your client will pay for depends on several factors such as their personal circumstances, for example, age, health, job and whether or not they smoke. The amount, type and length of cover they choose will also impact the premium they pay, which includes all the costs of administration, underwriting, claims and selling.
Chris McNab, protection product manager of LV, points out that family protection is often referred to as ‘family income benefit’.
He says while the total amount that could be paid out decreases each month, this reflects the fact that over time a family’s need for cover also reduces as children grow up and become financially independent.
There are two different types of cover available: level cover and inflation-linked cover.
With level cover the price a client pays and the amount of cover remains the same. With inflation-linked cover, the price a client pays and the amount of cover will both go up in line with inflation.
Two people can be insured under one plan, but Mr McNab says typically these plans only pay out once. This means that when a claim has been paid for one person, the cover ends and the other person is no longer covered.
Mr Wilkinson says: “You should make sure that your monthly cover is adequate for your client’s needs, not just today, but in the future.”
