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Four Ways to Protect Your Wealth and Your Loved Ones

Words by Bill Brown, Commercial Manager and Financial Adviser

We love working with our clients to grow their wealth and achieve their goals. It’s a great part of being financial advisers seeing those plans come to fruition. However, as I expect we’ve all experienced over the past two years in particular, the fact is that life does not always go according to plan. An essential part of a solid financial plan is to be prepared for the unexpected and protect your wealth.


In the second quarter of every year we invite our clients to focus on exactly that, highlighting the areas which might jeopardise an otherwise bright financial future.


This article covers some of the areas we consider in our “Wealth Protection Audit”.


Protect Your Income


We aren’t invincible, although the younger we are, the more we believe that!

Your income is the most basic requirement for a secure future. We worry about being unemployed and having no income, but we can control that to degree. We can’t, however, control whether we fall victim to an illness or an accident which keeps us away from work for a significant period.


Employers often provide nothing but statutory sick pay, which is £96.35 per week for up to 28 weeks. Larger employers might provide a few months’ salary if you can’t work but may not be able to afford to pay you long term. If you’re lucky, you might get 6 months’ full pay and 6 months’ half pay, generally the most comprehensive “in-house” cover available.


If you don’t know what your employer offers, find out now, and imagine a scenario where you’re deprived of your salary, and the impact of that on your finances.

If you’ve made it into your 40’s and 50’s without major incidents, then statistically you are now more likely to fall seriously ill, or suffer an accident, than you are to die. Therefore, this is one of the most important periods to protect against those eventualities. The time between your 50s and retirement is the time when you ought to ensure you have a viable Plan B for securing income until your pensions deliver.


Income Protection policies and/or critical illness policies are a vital component in a well-balanced wealth protection strategy.


Protect Your Mortgage


If you’re single, with no dependents, there’s an argument that you don’t need to repay your mortgage on your death.


Why? Because on your death, the property would be sold, the mortgage repaid, and the equity would form part of your estate.


That said, life cover on it’s own is typically very low cost, especially when you are young, and so taking cover as soon as you have a mortgage does often make sense. Once in place, any changes to health shouldn’t affect your cover, so in a way you are futureproofing an element of your protection portfolio.


However, once you share your life and goals with another person, and certainly once you have children, it’s vital to ensure your mortgage is repaid if you or your partner die.


Securing a roof over the heads of your loved ones in case of the worst should be one of the first steps of any financial plan.


“Protect against what?”, you may ask. As aforementioned, the younger you are, the more likely it is that a serious illness will threaten your security as opposed to death.


Of course, it’s vital to have the mortgage repaid on death (known as “Life Cover”) but there is also an argument to take some “critical illness” cover on your mortgage. It will typically be more expensive than life cover, and so many people don’t cover their mortgage completely, but it will likely add enough to give them some financial breathing space in the event they have to deal with cancer, a heart attack, stroke, or one of the other serious illnesses covered by such a policy.


As part of our Protection Audit, we review the type, level, term and cost of your current cover and either confirm it is appropriate and suitable or recommend something that fits properly. As your life changes, your protection requirements change, so if you’re like many clients with policies you took out years ago, an audit is a great way to give them a bit of an MOT.


Protect Your Savings


As you grow your wealth, it’s important to properly structure it. A sensible cash reserve, using tax free ISAs, will give you a cushion if the unexpected pays a visit. Investing in what you aren’t likely to need will also help you counter the effects of inflation over the medium term.


Having the right insurance policies in place, such as life cover, critical illness cover, and income protection will make sure you don’t have to use up all of your savings simply to pay the bills if life does not go according to plan.


Generally, although not always, having a sensible cash reserve for short term emergencies, with the rest invested in more adventurous investments is a good strategy for younger clients. They have time on their side to ride the ups and downs that world events create within investments.


As we get older, and nearer to the time when we want to spend what we’ve built up in savings, investments, and pensions, a more prudent approach may be needed with some or all of those pots. At Reeves Independent, we assess our client's finances and goals every year and tweak your investment strategy as life evolves. We don’t employ a one-size fits all approach, and never will!


Protect Your Family


Just having your mortgage repaid on death is often not enough to replace the full financial or physical, input of you or your partner. So in addition to repaying your debts, a Level Term Policy, or Family Income Benefit policy, can deliver a lifeline when they are very much needed.


I’ve often heard it said that “my husband or wife doesn’t work, therefore I don’t need to insure them”.


I don’t always agree - where there is a “home-maker”, typically looking after the children so that their partner can work, if the primary carer is lost, what would the cost be to replace them?? Would the surviving partner need, or perhaps want, to become the primary carer? They would then be giving up many years of earnings, which need to be replaced.


These things need proper thought and discussion to make sure the family unit is not only kept afloat but can achieve the goals they had together.


Wills are often overlooked as part of financial planning, staying on your “To Do” list until it’s too late. Dying without a will can create an emotional melting pot. Not only is it a far more longwinded road to sorting out whatever has been left behind, but it is an emotionally testing process when it need not be. It is easy to make a will and leave nothing to be challenged. Don’t leave your succession to the courts.


Conclusion


Whilst it might not be very nice to think about, it is essential that you have the right plans in place should life get derailed.


Generally, a sensible approach would be a budget friendly portfolio of protection products, making sure the mortgage and debts are repaid on death, and that there is enough extra funding to maintain a reasonable lifestyle, plus some protection against serious illness.


As my Granny used to say, there is more than one way to skin a cat, and a Protection Audit by Reeves Independent will explore your thoughts and feelings and come up with a solution that fits them, and your budget.



This article represents the opinion of Reeves Independent limited only, is for information only and should not be seen as advice or a recommendation to take action.


Investments can go down as well as up and you may not get back the original capital invested.


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