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Getting the best protection for a family

This article is part of
Guide to Family Protection

Advisers must carefully work through their client fact find and identify all the family’s outgoings, remembering to factor in consumables such as groceries, tobacco, alcohol and fuel, and future needs for the children in terms of clubs and school trips.

It is also worth considering the value and trade off in premium cost of using index linking to protect against loss of value by inflation.

When it comes to what level of cover is required, Bonnie Burns, product director of Legal & General, says her company has been researching the value of a parent for more than 30 years. Parents may tend to take their wages into account when deciding on a level of cover, but Ms Burns says they often do not consider the unpaid domestic work they do.

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It found £31,627 was the value of the domestic work a mother does each year. For father’s it is £23,971, which is 13 per cent more than it was in 2011.

Yet Legal & General found less than a third of parents have any critical illness cover (29 per cent), income protection (14 per cent) or family income benefit (12 per cent).

Its research also revealed parents spend three times more on pocket money and treats each week than they do on insurance.

When taking out a life insurance policy to protect dependants financially in the event of the policyholder’s death, Peter Hamilton, head of retail protection propositions of Zurich, says the term should be carefully considered.

He points out the plan is typically established for a fixed period of time, known as the ‘term’, normally between one and 50 years.

When considering the term, considerations might include intended retirement date, or when children might become financially independent. Term cover might remain level or decrease over time if being used to cover a repayment mortgage or loan.

As the term progresses, Mr Hamilton points out the cash sum payable decreases, roughly in line with the amount of debt remaining.

Different companies will include different features. For example, Mr Hamilton says there may be the opportunity to link the sum insured to the AEI or RPI in order to protect against the impact of inflation or to increase cover by a fixed percentage every year.

Some providers will offer guaranteed insurability options which enable customers to increase their cover, without further underwriting, on the occurrence of certain events, such as birth or adoption or moving home.

A critical illness policy pays out a lump sum if a customer is diagnosed with one of a number of listed critical illnesses. The amount paid out to a customer depends on how much cover they have paid for - and in some cases, it depends on the severity of their condition.

Some insurers make partial payments which means that eligible customers diagnosed with a critical illnesses covered by the product - usually in its early stages - will benefit from a pay-out which Mr Hamilton says is typically 20 per cent of their sum assured or £15,000 (whichever is lower).