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Point of View: When a family grows it’s time to revisit financial plans

Kate and William have announced the birth of their second child, a girl named Charlotte, to the great delight of the British public.

When a new baby arrives, there is often more to do than just coping with sleepless nights and changing nappies. In many cases, the family’s financial planning arrangements need to be adjusted to reflect the new and increased parental responsibilities.

Arranging or increasing life and critical illness protection is one sensible way in which to protect a family financially.

Life insurance pays out a lump sum of money or a regular income, to beneficiaries on the policy holder’s death (typically the death of a spouse/partner or parent). The money is typically used to pay off debts, such as a mortgage or to ‘replace’ a lost income. Often the life insurance people take out to cover their mortgage debt will be on a decreasing basis, typically used with a repayment mortgage, so the amount the policy will pay out decreases in line with the reduction in the size of your mortgage each month. This basic level of insurance is a good starting point, but will it be enough to provide a secure future for a growing family? A good Wealth Planner will help you decide how much money your family may need, and for how long, to replace an income or to cover all debts or childcare costs, or even to provide for some of the extras they may otherwise have to forego, such as school trips or expensive hobbies.

Critical illness protection is different and works to protect the policy holder financially if they become seriously ill. In this situation a pre-determined sum of money is paid out on diagnosis of a particular illness, rather than on death. The range of illnesses covered with a critical illness policy varies between insurance companies, but they will all typically cover serious cancers and common conditions such as a heart attack.

A sum of money at this point can make a valuable difference for example to cover some costs if you are unable to keep working, to supplement income in your recovery if you need to reduce working hours, or take a job on a lower salary. You may want to pay for home or lifestyle alterations, or even to work on your bucket list if your prognosis is poor.

What many people don’t know is that critical illness policies often also protect the children of a policy holder, and they pay out a pre-determined sum should a child become ill. This may allow parents to take time off work to care for their sick child, or provide the cash to adapt a home if a longer term care situation arises.

It is unlikely that Kate and William will ever need to worry about their immediate family’s finances, but the majority of every day parents need to ensure that they are protected should the unthinkable happen.

Here are our five steps to reviewing or buying critical illness and life insurance.

  1. If you arranged your life insurance many years ago, then it may be that you can arrange a new equivalent (or better) policy today which is much cheaper (depending on your health and age). This is more complicated with critical illness cover, as the conditions covered have changed over time with advances in medicine and better survival rates in many conditions. In both cases it is very important to be sure what you may lose and/or gain by swapping old policies for new.
  2. Check your current insured amount. If you have recently had a child or your family has grown then your financial commitments are likely to have become greater. Not having enough life insurance in place can leave your family vulnerable. Some policies can be amended to increase the sum assured with minimal effort and the additional monthly cost may be insignificant compared to the potential benefits. 
  3. Did you know that life insurance can be set up in order to provide your partner with an income? Family income benefit can be a solution to replacing your wage if you died and can pay out for a chosen set number of years, such as until your children become independent.
  4. Life insurance and critical illness cover is not just for the working partner. If your role is a stay at home parent, to care for the children and look after a home then you should consider this contribution in financial terms. Would your partner be able to afford child care and help around the home if you became ill or died?
  5. Remember to tell the truth. If you die of lung cancer caused by smoking a packet of cigarettes a day, but you have told your insurance provider that you don’t smoke, then your policy is likely to not pay out. Be open and honest when talking to your Wealth Planner so they can arrange comprehensive cover.  

If you would like to find out more about life insurance and critical illness cover, or to review your wealth and finances, please do not hesitate to get in touch. We'd love to hear from you. Email letstalk@sanlam.co.uk.

Date issued: 12.05.15

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependant upon individual client circumstances and may be subject to change.

Sanlam is a trading name of Sanlam Wealth Planning UK Limited (Reg. in England 3879955) and English Mutual Limited (Reg. in England 6685913). English Mutual Limited is an appointed representative of Sanlam Wealth Planning UK Limited which is authorised and regulated by the Financial Conduct Authority.

Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.