Protecting yourself financially

Financial “Protection” refers to a range of financial insurance products rather than a system of extortion and tribute collection as dramatised in Hollywood mafia films. These products insure people’s lives and health. They date back to Roman times where members of “burial clubs” pooled regular contributions into a fund which covered the cost of members’ burials and provided assistance to bereaved families.

Nowadays, they are more sophisticated but still serve more-or-less the same purpose. For instance, one can insure their ability to earn an income with Income Protection Insurance (IPI). This pays a regular income to the insured person if they are unable to work due to a long-term injury or illness.  There is also Critical Illness Cover (CIC) which pays a lump sum on the diagnosis of a specific critical illness.

However, more common is life assurance.  Confusingly, the word assurance (rather than insurance) is generally associated with insuring against death, as it refers to provision of coverage for an event that is certain (or assured) to happen – ie death.  Insurance refers to coverage for an event that might happen. Even more confusingly insurance against death within specific term – where death might happen, is called Term Assurance (TA).

It is generally recommended that those with dependents or liabilities such as mortgages have some form of protection in place. These policies can also be quite cheap.  A 32 year-old, non-smoking man can get life assurance of £200,000 over a 25 year term for £11.80 a month. It is also recommend that one visits an independent financial adviser (IFA) who can interpret the jargon, consider the levels and types of policies one may need, and access the most suitable insurance products from the whole of the market. Even though it is not nice to think about your death or events after it, it is important to educate yourself as to your options and have a back up plan.

Disclaimer: This article is for general information only. Do not act on its contents without seeking professional advice tailored to your particular circumstances. Heritable Financial Planning are a trading style of Johnston Financial Services Ltd who are authorised and regulated by the Financial Services Authority.