The team at FPC is privileged to have been asked to present a series of talks on financial literacy for law graduates at BPP University Law School, although they would be equally relevant for any young professionals.
In the third of the talks, Chartered Financial Planner at FPC, Will Carter talks about insurance products, the different types and how they may be relevant throughout your life…
What is financial protection?
We use insurance to protect ourselves against risk, making regular payments each month so that in the event of something happening, the insurance company will pay out and cover our costs (or some of them).
Your employer may provide some insurance cover but there’s a possibility there may be some gaps so it’s worth thinking about budgeting for insurance when you’re considering how much of your earnings to allocate to other outgoings such as pensions and tax.
There are different types of insurance policy. We’re going to look at four of them:
Accident Sickness and Unemployment policies (ASU)
These are short term policies which cover you if you lose your job through no fault of your own, paying out a tax-free income for a limited time, usually a year but sometimes up to 2 years.
Your employer will probably have a sick pay scheme which means you’re entitled to Statutory Sick Pay, unless you’re on a training contract and your employer doesn’t keep you on at the end of the term. This is where an ASU policy will kick in.
At FPC we always encourage our clients to hold an emergency cash reserve so you can cover your bills and payments if you’re out of work for a short period of time.
Private Medical Insurance
This insurance helps to pay for private medical care as an alternative to getting treatment from the NHS. It’s particularly topical due to all the current controversy around long NHS waiting lists. Private medical insurance provides more choice, treatment may be quicker and can possibly provide peace of mind should you need to access treatment at any stage in your life.
It covers short term conditions and pays for initial tests, and possibly private accommodation and medication not available from the NHS.
Permanent Health Insurance (also known as income protection) & Critical Illness Cover
Permanent Health Insurance pays out a tax-free income if you’re sick and can not work. It doesn’t cover your full salary but usually around 60-75% and pays out until you return to work or retire (ie. possibly a long time!). Your employer may already offer income protection cover but this would obviously stop if you were to leave your firm.
Critical Illness Cover pays out a lump sum, not an income, if you are diagnosed with a serious or terminal illness.
For Permanent Health Insurance, the only requirement is that you are unable to work due to sickness, whereas with Critical Illness cover, there is a list of specific illnesses which are covered.
Both types of policy can be expensive and it’s not always possible to have both at the same time.
In Summary – think about:
- what your firm offers?
- are there any gaps?
- what options are available to you, depending on affordability and priorities?
Check out our other talks: