Protection Policies
Putting a protection policy in place for the benefit of your dependents is as important as having a well thought out management investment programme.
There are 5 distinct types of protection you can get:
1. Mortgage Protection
When you draw down a mortgage you will be required to put a mortgage protection policy in place to pay off the mortgage in the event of your untimely death. This provides protection for your family.
You and they know the family home will be safe.
2. Level Term Cover
This is what was always known as a “life Policy”. It provides for a fixed lump sum benefit to be paid on the death of the policy holder, over a pre-defined period of years.
The protection policy is paid by way of a monthly premium that can be fixed for the term of the policy or for a slightly higher monthly premium you can have a conversion option which will give you the option to extend the period of life cover without having to undergo a medical.
3. Serious Illness & Income Protection (PHI)
A serious illness policy will pay out a single lump sum in the event the policy holder is diagnosed with an illness which is covered under the terms of the policy.
Income protection can give you a replacement income if you can’t work because of an accident or illness.
They are often taken out alongside a Level term cover policy. There are several variations within this area and good advice is vital.
4. Business Protection / Shareholder Insurance / Keyman
Often when a company shareholder (with any significant shareholding) dies, the surviving spouse or estate will inherit the shareholding and a seat on the company board. This can sometimes create contentious situation for the remaining shareholder and the company itself.
To head this off it is prudent that the company put in place insurance policies that would pay out a sum assured to allow the remaining shareholders / directors buy out the deceased shareholders stake from their estate.
5. Inheritance Protection
These policies are known as “Section 72 – Whole of Life cover”. They are Revenue approved policies that are unique insofar as the proceeds of these policies are tax – free as long as they are used solely to pay an inheritance tax bill.
They are used both by couples or individuals where there is likely to be an inheritance tax liability. Currently this tax is 33% above an initial tax free lump sum. So, putting a policy in place to reduce future inheritance tax is very worthwhile.
