Father’s Day is just around the corner on 15 June. This special occasion provides an opportunity to recognise all dads and celebrate their contribution to the family.
An essential part of any parent’s role is to protect and care for the wellbeing of their children. This includes ensuring that your family will be financially secure in the face of unexpected events, such as you becoming ill and unable to work.
Keep reading to learn about three important types of financial protection that may provide a valuable safety net for you and your loved ones should the worst happen.
1. Life insurance
Life insurance could provide valuable peace of mind that your dependants, such as your children or partner, will be provided for financially if you were to pass away.
This type of cover pays out either a lump sum or regular payments, both of which could help your family cover living expenses or pay off large debts such as a mortgage.
The amount paid out depends on the level of insurance you buy.
There are two main types of life insurance to consider:
- Term life – Covers you for a fixed period of time known as a “term”
- Whole of life – Provides lifelong cover, provided that you keep up with premium payments.
Which one is right for you will depend on your family’s needs and priorities.
Term life policies are often used to cover financial responsibilities that decrease over time, like a mortgage or school fees. In contrast, whole of life insurance may be a useful way to pay for a funeral or pass on an inheritance.
You might also want to consider putting life insurance in a trust.
This could ensure that your dependants receive a payout as quickly as possible because they won’t have to wait for probate to be granted. IFA Magazine has reported that the number of probate cases taking over a year to be granted rose 134% between 2020 and 2024, so this may be a significant benefit.
Moreover, life insurance held in trust will not usually be considered part of your estate for Inheritance Tax purposes. As such, this approach could ensure that your loved ones receive as much of any payout as possible.
2. Family income benefit
Instead of a lump sum, family income benefit provides a regular, tax-free income to your dependants if you die or are diagnosed with a terminal illness during the policy term. As such, this is a type of term life insurance.
If you’re the primary earner in the household, family income benefit could provide a useful way to ensure that your dependants are able to keep on top of day-to-day costs – such as mortgage payments and household bills – without your income.
Regular payments may feel more reassuring than a lump sum, and they may help with budgeting.
However, a single payout might give your family more financial freedom. What’s more, your family income benefit is only paid out for the remaining term of the policy, so the amount your loved ones will receive depends on when you die.
As such, this type of income protection may not be suitable for all families.
3. Critical illness cover
If you’re diagnosed with a serious illness like cancer, or have a heart attack or stroke, critical illness cover will usually pay out a tax-free lump sum.
This could help you pay for medical expenses, replace lost income, or adapt your home if you need to.
It’s important to check which illnesses are covered, as your policy will only pay out for the specific medical conditions listed.
If you and your family rely heavily on your income and you don’t have sufficient savings to cover an extended period out of work, critical illness cover could provide a lifeline if something unexpected happens.
You can either take out this type of protection as a stand-alone policy or you could add it to your life insurance policy. The latter might be a more cost-effective option, but it may also offer less flexibility.
We can help you understand your protection needs and select appropriate cover
Trying to figure out which type and level of cover you need to safeguard your family may feel overwhelming.
Our financial planners can help by:
- Explaining the different types of protection available
- Helping you research and select policies that match your needs
- Conducting ongoing reviews to ensure your protection remains suitable for your family.
Through tailored advice and support, we can provide you with peace of mind that you and your family are financially protected, whatever the future holds.
Get in touch
We can help you understand which type and level of financial protection you need to safeguard your family’s security.
Please get in touch by emailing info@lloydosullivan.co.uk or call 020 8941 9779 to see how we can assist you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning or tax planning.
Note that financial protection and life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
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