What would you do with a 10k windfall?

Tuesday 05 January 2016, 11:02 AM

Ricky Butler
Head of Best Practice , LifeSearch

  • Cash falling Lg

What financial products and priorities would you address if you received a £10K windfall? The standard response would typically be pay off debt if you have any and then maybe place into savings. Only 5% of us would consider taking on some life cover or critical illness protection even though most of us don’t have any according to Aviva.

  • Two out of five of us would consider repayment of debt as a priority over savings and 14% of us believe it’s more important than life insurance. Good financial planning should be underpinned by protection. Ensuring your families financial security should be top of the list for many but it clearly isn’t. In the UK we have a protection gap of almost £2.4 billion; this equates to over half of UK adults not having any life insurance at all. Advising for over a decade gives you a good insight into why many people choose not to take on protection.
  • People have a natural blind spot when it comes to buying life cover. Most of us don’t wish to think about it and believe it will be too complicated to buy or too expensive. UK insurers have responded by launching what they called ‘simplified life products’. These life policies are essentially vanilla contracts stripping back increase options and tightening up on the underwriting criteria to give you the customer the lowest price possible. Beagle Street; a new direct to customer provider, has recently launched online and driven the cost in many cases to below £5 a month. Think about what you spend £5 a week let alone a month and you start to realise that something this important and this cheap shouldn’t be overlooked or put off.
  • Your age, health, occupation, hobbies and smoking habits all affect your morbidity rate and importantly your premium. The lower the risk the less you pay, so the younger you consider protection the more attractive the cost becomes. If you have no pre existing medical conditions you could end up answering less than ten health questions before you are covered. If however you do have a chequered health history, the best course of action is to seek advice. A specialist broker will have knowledge of the market and place you with the correct provider but it may be harder to find. A common condition like blood pressure could mean the difference between paying 50 to 100% more on your premiums than the quoted premium.
  • One of the other objections to taking on protection is that many want their money back if they don’t die. Term assurance is the most popular way of buying life cover as it offers the most cover for the lowest premium. By its very nature will insure you over a term (years) and will end if you don’t die or become ill within the period. It’s wise to protect yourself during the period of time there is a need to commonly while you are earning, have debt or dependents. You don’t get your money back if you don’t make a claim but you have the peace of mind that its there when you do. A car can be replaced and a house will be rebuilt; but replace you or your loved one? The insurance won’t ease the emotional pain but it will help with the financial burden
  • If you still don’t like the idea of taking on a plan that will end, an alternative to term is whole of life cover to protect you whenever you die. It will cost more and you need to consider whether you can sustain the premiums into the future as cancelling it then could mean no monies are returned to you. So you take on cover, you insure yourself over a term and you pay less than £5. Satisfied? Well no. What’s to say that the insurer won’t wriggle out of claim? Do your own research and you will find that when you study the industry published statistics, life insurance claim rates are near the 100% mark with very few claims declined.
  • Buying protection isn’t exciting but it is important. There is clear choice for you as a consumer and the cost is competitive. All you need to do is act and not put off one of the most important decisions in your life

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