This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
How secure are your finances should the “worst happen”? With the arrival of a new year, 2022 brings the opportunity to take a fresh look at your financial protection. However, this subject can seem formidable – meaning it is easy to put off. Below, our team at Elmfield (financial planners in Padiham, Burnley, Lancashire) offers this short guide to bring some clarity and help you get started. We hope this is helpful to you. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
Emergency buffer
What would your finances look like if you – and/or your partner – suddenly became unemployed? Many people, sadly, are forced to turn to credit card debt; hindering their future finances with the high interest payments. With a decent emergency fund, however, you can help smooth over this difficult time as you look for new work. Usually, 3-6 months’ worth of living costs held in a cash savings account (“easy access”) is sufficient. However, it is typically unwise to hold too much cash which could otherwise be put towards other assets (e.g. shares or bonds).
Check your will
Are you confident that your wealth would pass to loved ones in the correct manner, should you pass away? Here, an up-to-date will is crucial. This legally-binding document stipulates where (and how) your estate should be distributed when you die. Without it, your possessions and finances are subject to the UK’s “intestacy rules”. These may not allocate your wealth in the way you would have liked – or, to the right people. Consider checking your will again, especially if it has been a while and your life circumstances have changed (e.g. having a first child).
Consider life insurance
You may not need this if you have no dependents. However, if people rely on you for financial stability (e.g. as the “breadwinner”) then your premature death could put them in a challenging position. Life insurance is a great way to provide a safety net for your loved ones should this ever happen. For homeowners, it could even allow your family to pay off the mortgage fully – taking away a large monthly expense as they seek to find their feet. Make sure any insurance you have is up-to-date, especially if you have taken out a larger mortgage (which your policy may not fully cover).
Check your pension expression of wishes
Did you know that most wills do not cover what happens to your pension when you die? Here, you should consider approaching each of your pension providers and telling them who you want to receive your benefits. This will be easier, of course, with fewer pension schemes to deal with. Here, you may also want to speak to your financial planner about consolidating some/all of the pots as part of this process. Doing so can help for easier management in the future, and may even open up more opportunities for investment choices and saving on fees.
Consider other policies
Life insurance can be sufficient for many people. Yet others may benefit from additional policies for specific protection needs. In particular, income protection can be a valuable tool for those worried about their income should injury/illness prevent them from working. This product pays a “replacement” income (e.g. equivalent to 60% of your salary) in such a situation. Another option is critical illness cover. Similar to life insurance, this pays out a lump sum when conditions are met; in this case, if you are diagnosed with a specific condition (such as heart attack).
Check employment benefits
Does your work contract specify any benefits that are made available if you died in the course of your employment, or became seriously injured on the job? If so, this can affect which financial protection you may want to take out for yourself. For instance, some employers offer “death in service” benefits; perhaps paying out 4x your salary to your family. Having this might mean you do not need a life insurance policy (or, not as comprehensive cover).
Review your estate plan
Financial protection, ultimately, helps you put plans in place for the great “what if” questions (e.g. “What if I die – what happens to my loved ones”)? One thing that could scupper your plans, however, is tax. Without careful thought, the likes of inheritance tax (IHT) could undermine the financial safety nets you lay out. Here, a tax plan – tying into your protection plan – is vital.
Consider speaking to a financial planner about your estate plan. For instance, if you have a life insurance policy in place, how might this bear upon your estate’s IHT bill when you die? In some cases, the payout is subject to IHT as well! Here, a financial planner can help ensure that your policy is appropriately written into the right trust.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
