However, what if I suggested that many people had a far more valuable asset than their home, and this asset is often largely underinsured? Or possibly not even insured at all?
- The single-largest asset for most people is their ability to earn an income. As retirement ages increase, your working life can potentially last 50 years or more.
The economic value of your future income is typically your greatest resource and it needs to be protected.
CAN YOU AFFORD TO TAKE THE CHANCE?
Modern life can feel expensive. Mortgage payments, replacing the car, school fees, family holidays, university costs and tax bills can all add up very quickly. The temptation is to assume that you’ll always be fine and nothing will ever happen to you.
Very often, high earners will also have very high outgoings. We will see this through Sam’s story*…
Sam, 38, has had a successful career to date. Having risen through the ranks of the company, Sam now manages a team of 20 people. With a basic salary of £85,000 and a bonus last year of £25,000, Sam feels in a strong financial position.
Sam is married to Alex, and they have twin daughters, aged seven. Alex used to work in the same company as Sam, but decided to stop working in order to stay at home to raise the children. Both children are enrolled at the local private school, and the family enjoy taking two holidays per year (at Easter and in the summer).
The family recently moved home so that the girls could have a bedroom each. In order to do that Sam, who was recently promoted, had to extend their mortgage borrowing to £425,000. With interest rates low, Sam is happy that this is very affordable (even if rates increase in the medium term). Sam and Alex have no plans to move any time soon.
Sam is healthy, the family are financially sound. However, should Sam be unable to work through ill health, his employer will only pay the first six months of Sam’s absence. After that, Sam and the family will need to either find a new income, or change their lifestyle drastically.
Tilney Bestinvest has helped many clients like Sam. As part of our relationship we would have suggested to Sam that following a promotion and house move, an insurance policy was established to protect Sam’s income in the event of illness, and also to provide a lump sum to cover the mortgage.
CONTINUING SAM’S STORY
Unfortunately, Sam became ill and faced a long time off work. Initially it was feared Sam may never work again. The insurance policy provided a lump sum and tax-free income during this difficult time which meant:
- The mortgage was settled in full, meaning that they could happily continue living in their home
- They were able to give their daughters stability by keeping them in their current school
- While Sam’s life had changed, the family are still able to go on an annual holiday in the summer
- They are able to continue shopping in the same places, continue the same hobbies, and continue spending in the same fashion
Most importantly, the insurance gave the family financial security and stability at what was otherwise a traumatic time. Sam was able to focus on getting better, rather than worrying about the family finances.
THREE YEARS LATER…
Sam had recovered sufficiently to be able to return to work, earning again, and family life returned to normality. The insurance stopped paying an income but remains there as a safety net should the illness come back.
Nobody knows what the future holds, but what we can do is plan for the various different outcomes, including the worst case. Tilney Bestinvest’s financial planners are able to recommend how best to make sure your family’s financial future is protected, so whatever life throws at you, at least you know your finances are taken care of.
* Sam and Alex’s story is constructed from a number of actual client situations and is designed to illustrate the value of Income Protection Insurance and critical illness insurance.
To find out more about how our financial planners can help you please feel free to get in touch with us on 020 3131 6543 to arrange an initial consultation.
This article does not constitute personal advice. If you are in any doubt as to the suitability of an investment, please contact one of our advisers.
This article was previously published on Tilney prior to the launch of Evelyn Partners.