You may be familiar with insurance for your home or car, but there will come a time when you need to protect things even more important – your life, health and income. Insurance for these things means that you and your family are taken care of if the worst happens. The price you pay for these insurances depends on your health, lifestyle and the sum you want to be paid out.
Life cover pays a set sum to your family or dependants if you die within the term of the policy. Think about what you want the money to cover when you set the amount – it could be to clear a mortgage or other debts, pay funeral costs, or money to support the living costs of your family for a period.
Check to see if you get a death-in-service benefit from your employer, as this could reduce the sum you need from life assurance.
Any pre-existing medical conditions may not be covered, or push the price higher. Answer all health-related questions as fully as possible, because your insurer may not pay if it believes you have not disclosed important information.
Critical illness cover
This can be bought as a separate policy or alongside life assurance. It pays a set sum if you are diagnosed with one of a list of serious medical conditions, such as cancer, even if you recover.
When you set the sum to be paid out, consider the bills you would want it to cover, and perhaps costs that could arise from your recuperation, including adapting your home.
Income protection substitutes your income if you are made unemployed due to an accident or sickness. It pays out for a fixed period, or until you start working again, retire or die. You can set the policy to pay a replacement income, or just to cover essential bills.
Make a will
You must have a will that clearly states your wishes, because if you die intestate – without a will – you have no say over what happens. The court determines how your assets are distributed. Only married or civil partners and some other close relatives can inherit. So, failing to leave clear instructions in a will means relations by marriage, close friends and even unmarried partners – misleadingly called common-law spouses – could be left with nothing.
Even if you are married or in a civil partnership, the rules can decide who gets what. For example, in England and Wales, the spouses of those who die intestate will only get up to £250,000 if there are any children – the kids get the rest.
You can make a legally binding will without the help of a solicitor, but run the risk of it being challenged if there are mistakes. Low-cost will-writing services exist if your affairs are straightforward, but more complex situations are better handled by a solicitor.
Plan for inheritance tax
In the 2017/18 tax year, everyone is allowed to leave an estate valued at up to £325,000. Then there’s the new 'main residence' band of £100,000 giving a total allowance of £425,000. Above that amount anything you leave is subject to 40% tax.
There are ways to plan for inheritance tax – including giving money away to reduce your liability. For instance the tax rate drops to 36% if you leave at least 10% of your assets to charity. However, there are strings attached. Those facing a large bill should consider professional help from a financial adviser.
Married couples and civil partners can pass unused allowance between them. Any assets left to your spouse or civil partner are exempt from inheritance tax. On top of this, your partner's inheritance tax allowance rises by the amount of your allowance that you didn't use, meaning a couple can currently leave £850,000 tax-free.
The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. You should regularly review your investment objectives and choices and if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.