Snow excuse not to be protected financially plan for financial troubles

Dec 4 2010 The Journal

The harsh winter weather should make us realise the importance of being prepared, says Alok Dhanda, of Dhanda Financial.

THE heavy snowfall that we have seen in the UK this week proves that we should always be prepared for the unpredictable. Emergency services have been inundated with call-outs because of the treacherous conditions and increased number of accidents on the roads.

These weather conditions should serve as a warning for us. It is no good preparing ourselves by using spades, salt and de-icers when we go out in the car, if we neglect to protect ourselves from financial troubles in the event of an accident. By failing to plan, you plan to fail.

Take the time this winter to look in the mirror and ask yourself, if you were involved in an accident, how would your loved ones cope financially? If you found yourself unable to go to work, it would be dangerous to assume that the State would take care of you, as the Government is intending to make heavy cuts to benefits.

Many of us can’t afford to rely on employer sick pay either. Employers are only obliged to pay out Statutory Sick Pay of just over £75 per week for up to 28 weeks and many small businesses only provide this basic allowance. Public sector workers are better off, but these workers still need to think about whether or not they will have a role to go back to.

As everyone knows, jobs are scarce at the moment and many people are under pressure to find work, so someone else may have stepped in to your role by the time you’re ready to return.

If you’re self-employed, think about what will happen to your business if you don’t have income protection and have to take time off. Can you afford to pay for someone else to take care of your business in your absence?

Income protection policies provide cover for at least 75% of a person’s salary. They pay out a tax-free amount within a certain period from being off sick, which can be anything from one-day cover to 52 weeks, and people will pay a higher premium for plans that pay out earlier.

Some companies also offer an investment element to the premiums, where you benefit from a share of the company profits, and have something to show for your money should you have no reason to make a claim. However, you should always seek guidance from an independent financial adviser (IFA) before embarking on any kind of income protection policy.

The same goes for critical illness cover. It is vital that people of all ages look at how they would pay their bills, mortgages and other debts should they find themselves in a position where they can’t work.

In the event of an illness being diagnosed, the insurance company would pay out a tax-free lump sum after a survival period. Critical illness insurance can be written jointly with life assurance and a given sum will be paid out on the death of the insured, or in the event of the critical illness, under the one policy.

Every family should make this a priority and take out a critical illness plan now, especially considering the current state of the housing market. Property prices are down, so if your family couldn’t afford the mortgage and had to sell the house, they could fall victim to negative equity. There is no excuse to put them at risk by not putting a sensible plan in place. An IFA will be able to advise you on the best level of cover for your personal circumstances.

Self-employed business owners or company directors should consider what they would do should they lose a director or key member of staff through death or a critical illness, which could be very damaging and could potentially bankrupt a business.

A key-person insurance policy can protect the company by paying the costs of a temporary replacement, meeting the costs of recruiting a permanent replacement and covering the cost of death or incapacity of a key member of staff.

So, as the winter continues, don’t just prepare your car for travelling in the snow, but make sure you prepare good financial cover to protect you and your family against the worst. Remember, you can only claim if you have a policy in place, so please seek the help of an IFA.