If asked to state your biggest asset, it’s likely that your automatic reaction would be to say the house you live in. Given the value of property, it’s a natural answer, but, based on the average level of mortgage debt, which is currently £135,000, it’s more likely to be your biggest liability.
Here at Edgewater, we believe your biggest assets are you and your family. Generations within families care for each other, have hopes for each other, encourage and inspire each other, and provide emotional and financial support when problems arise.
Unlike other assets, it’s not possible to financially quantify the value of your family. But, as with other assets, we strongly believe that you should take whatever steps you can to ensure they are protected. You protect your car, home, pets and even mobile phone, so it should be second nature to protect you and your family.
As your biggest asset, it’s crucial that you’re able to provide for your family; to earn the regular monthly income to house, feed and clothe them – and provide a decent standard of living. Effectively you’re the ‘money-making machine’ they rely on and, as with all machines, things can go wrong.
Let’s look at some of the steps you can take to protect these human ‘assets’, should the worst happen.
A rainy day fund
Your first key priority should be to establish a ‘rainy day’ fund. This is a sum of money earmarked to cover day-to-day essential expenses, in the event of loss of earnings or earnings potential.
A usual rule of thumb is that this should be two- or three-months’ net salary so that, if your salary stops for any reason, you have some crucial breathing space. You can take stock and manage financially without the worry of immediately having to look for alternative sources of income.
Less than half the population have such a fund in place. If you’re unable to work for any reason, a fund like this ensures your essential bills are covered.
State benefits
It’s well worth considering the state benefits you’d get in the event of being ill and unable to work for an extended period.
The rate of Statutory Sick Pay (SSP) in Great Britain is currently just £95.85 per week, payable for 28 weeks. On the Isle of Man, the short term Incapacity Benefit rate is £86.15 per week (up to one year) and the long term rate (over one year) is £114.15. These amounts might just cover the weekly shop for a family of four, but what about the other essential spending each month, such as utility bills and childcare?
If you’re employed, your employers may offer some level of sick pay in the form of a continuation of salary payments. However, the level of sick pay will often be limited and will often entail reduced income after a certain period of time.
If you’re self-employed, there’s no such safety net in place. In most cases, if a self-employed person isn’t working, they aren’t earning.
Statistics show 60% of families will get little or no support if their main breadwinner can’t work, yet only 11% of families have some kind of private arrangement. That presumably means that there are a lot of people walking around with their fingers crossed, hoping that the worst doesn’t happen to them.
Income Protection
Accident and sudden illness can happen to people at any time, and the bills don’t stop when either occurs. That’s why one of the best ways to protect your family lifestyle is to consider Income Protection.
In simple terms, this protection will provide you with a monthly tax-free income if you are signed off by your doctor as being unable to work. Cover is typically limited to 60-70% of salary and will usually be paid for a minimum of 12 months or to your selected age. For example, cover could be paid to age 65 or later if selected, after an initial excess period. This cover could be index-linked also.
When it comes to protecting your most cherished assets, these types of plan can go a long way to providing financial reassurance for yourself and your family.
Critical Illness
Income Protection is primarily designed to cover you by paying a monthly sum while you’re unable to work for a certain period – but what happens if your illness is more severe?
Critical Illness cover will pay out a lump sum in the event of you suffering a major illness such as a stroke, a serious heart attack or many types of cancer.
Again, this type of plan provides the comfort of knowing that if you’re diagnosed with a serious condition covered by your policy, there’ll be a lump sum of money available to meet immediate family needs and help support your rehabilitation.
You could repay some or all of your mortgage, pay for medical care, meet your monthly commitments, or adapt your home as required.
Life Insurance
Life insurance – the payment of a lump sum to your family on your death – gives you the reassurance of knowing that you’re providing for your family even if you aren’t there.
Your family will be secure in the knowledge that they have no financial worries – one less thing to worry about at a time of great stress and upheaval.
Getting paperwork in order
Protecting your family – your greatest asset – can also mean reducing their stress at a time of maximum upset.
It’s worth taking time to ensure your financial affairs are in order. To this end, you should always make sure you’ve made a will. Dying intestate (without a will) means potential long-term legal wrangling for your family.
Two-thirds of people die without a valid will in place. It’s a remarkably high figure, given the fact that eventually, everyone should need one, and how simple and relatively cheap it is to set one up.
As well as a will, also ensure that you’ve completed expressions of wish and death benefit nomination forms for all the insurance and pension policies you hold.
Summary
There are several steps you can take to ensure your greatest asset – your family – is protected, regardless of what might happen to you.
All these steps are simple and straightforward, and all of them will give you the quiet reassurance that your family will be able to live relatively comfortably in the event of you being unable to provide for them.
As protection experts, we can help you to put the right cover in place. To find out how we can help you get in touch.