Family Planning - Are You Protected?
Utter the words “family planning” and almost everyone will think about contraception, very few will think about their finances! Yet we all know the most cash-strapped years of our lives begin when our children are born and don’t end until they become financially independent (which normally means getting a job and leaving home).
You may choose to support them on this journey but what would happen if your income stopped or reduced quite dramatically along the way? What would happen to your financial future if you were struck down by an unforeseen illness or injury?
Important questions to ask yourself:
Being able to provide financial support to your family is very much dependent upon your cashflow.
- Can I afford to pay the mortgage/rent if I can’t work?
- Does my employer offer a sick pay scheme?
- Do I have any savings that I can use to pay the bills and keep up mortgage repayments if I cannot go to work?
- Will using up all of my savings still enable me to achieve my financial objectives?
If the answer to any of the above questions is ‘No’ then you are putting you and your family’s future at risk. You do not want to find yourself in a position where your home is repossessed and you have depleted your life savings.
Types of protection
Having a policy in place like an income protection plan can work to your budget, and is designed to provide a tax-free monthly income over a term you select (usually linked to your state pension age).
You may also have heard of Critical or Serious Illness plans. These are designed to pay out lump sums of money to clear debts, such as a mortgage if you are ever diagnosed with something like cancer, meningitis or a terminal illness. These policies can also contain additional cover for your children. All too often you hear of the heart-breaking fundraising efforts of parents looking to give their child access to the latest treatment.Critical Illness plans can provide you with a sum of money (for example £25,000 plus) if your child is diagnosed with a specified critical illness. This cover is normally included free or at very little extra cost to your plan.
“Protect before you Invest” is the old adage that you hear uttered in the world of financial advice - proof that not all big financial planning milestones need to be complicated. It’s sometimes the simplest solutions (e.g. protection) that make the biggest difference to your family’s financial plan.
What happens to your family if you die? Will the mortgage be repaid? Do you want to leave behind a legacy for the kids? Do you have enough savings in place to cover unforeseen emergencies?
All of these are important questions that you should start thinking about, if you haven’t done so already.
Another key consideration is whether you have an up-to-date Will. Dying without making a will (commonly referred to as intestate)leads to a raft of litigation and complexity that is best avoided, particularly given how easy it is to create a Will these days.
Last of all I will mention pensions. With the state pension age being pushed back further and further, younger generations aren’t nearly as keen to save into these contracts. However, for every £80 that you contribute into a personal pension the government provide £20 basic rate relief or, for a higher rate taxpayer, for every £60 you receive £40 in tax relief - free money! Pension contributions also come in very handy if you’re in danger of losing your child benefit, or if your annual income exceeds £100,000 per annum, as they are tax relievable, which means you can deduct them from your taxable income.
In a nutshell, family planning is important and good planning can help prevent you from falling on hard times in the future, so don’t hesitate to book an appointment with an IFA today.
Rachael Hall (IFA)
Gallagher & Tarran Limited
Gallagher & Tarran is authorised and regulated by the Financial Conduct Authority (FCA). Not all the products and services described above are regulated by the FCA.