Protecting your family from financial catastrophe – the excuses and the reality

New research from LV= has shown that the cost of raising a child, from birth until they reach 21, has risen to £227,266.

The rising cost of childcare is one of the main factors, whilst many families have been hit hard by the changes to Child Benefit. Indeed, 25% of mothers have returned to work sooner than they would have liked to because of the changes and 20% of parents have decided to delay starting a family.

The report highlights the need for parents to consider the financial consequences illness or death would have on the family finances.

After all, if the withdrawal of child benefit, which pays £20.30 per week for the first child and £13.40 for each additional child, causes significant financial hardship, parents should ask themselves what the effect would be of losing one of their incomes.

For most families it would be a financial catastrophe, so why isn’t making plans for this a priority for many families?

• Just 38% of parents have Life Cover
• Only 12% of parents have Critical Illness Cover

We thought we’d look at some of the common excuses and then the reality. But for most people there really is no excuse not to do something.

Excuses and the reality

Excuse: “I can’t afford it”

Reality: Of course this will be true for some families, whose budgets are stretched to breaking point, but for most it is simply a matter of priorities.

The most basic form of financial protection is of course Life Cover, which pays out a lump sum or income if you die.

This really isn’t expensive as the following table shows:

People insured	Cost of providing £200,000 of Life Cover over 18 years
Male & female, both non-smokers, both aged 25	£12.40 per month
Male & female, both non-smokers, both aged 30	£14.61 per month
Male & female, both non-smokers, both aged 35	£18.83 per month
Male & female, both non-smokers, both aged 40	£26.62 per month

Source: irsess 27th January 2014

For the cost of a couple of lattes once a week in your favourite coffee chain, you can provide your children and partner with much needed financial security.

The question should be: can you really afford not to do it?

In fact we’d go further and ask whether parents who don’t protect their family from financial catastrophe are being selfish?

Excuse: “It won’t happen to me”

Reality: You’re right, you probably won’t die before your children are financial independent, and you probably won’t become seriously ill.

But if you did, how would your family cope financially? Could they continue with their current lifestyle? How would your children’s future be affected by the cut to the household’s income?

As with any insurance policy, this is about buying peace of mind should the worst happen.

Excuse: “The insurer won’t pay out”

Reality: Many of us have a natural scepticism towards insurance companies and whether or not they will accept a claim.

The stats show that when it comes to Life and Critical Illness Cover, concern that an insurer won’t pay out is often misplaced:

• In the 12 months to June 2013 Scottish Provident paid out 91% of all claims, a total of £52,929,390
• In 2012 Aviva paid 93.5% of all claims made, a total of £475 million
• In the same year LV= paid out on 95% of all protection claims
• The claims not paid were due to either a lack of disclosure on the original application form or because the definition of illness was not fully met

Excuse: “It will be a waste of money”

Reality: Hopefully it will!

In all seriousness though, of course we hope that you never make a claim on a Life Cover, Critical Illness Cover or Income Replacement plan; it will mean you’ve lead a pretty healthy life.

However, is giving your loved ones and financial dependents peace of mind if the worst should happen worth the monthly cost?

Only you can answer that.

Excuse: “We’ll cope”

Reality: Get a sheet of paper, down the left hand side write your monthly income and that of your partner.

On the right hand side right down your outgoings.

Most people should have a higher number on the left hand side than the right. In other words you earn more than you spend each month.

Now cross off one of the income figures on the left hand side; you’ll probably now be left with a shortfall each month, your household expenditure will exceed your income.

If this is the case you should look to protect your family from the effects of illness or death, it’s clear that you couldn’t cope even if your outgoings were trimmed.

Time to rethink your priorities?

For most families the loss of an income, through death or ill health, would put a huge strain on the family finances.

If you have children, but don’t have protection in the event of death or illness, we’d really urge you to think through the consequences.

• If you weren’t here or were ill, how would your partner and the children cope financially?
• Take a moment to imagine the compromises and sacrifices they would have to make
• Is a few pounds a month really too much to provide for the future of your family if you are not around?

Our team of Independent Financial Advisers is experienced in advising parents on their protection options, often working to a limited budget.

If you have children and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk