Most people dislike paying for any form of insurance but accept that they have to insure their house, their car or their business. It is therefore interesting to note that the majority under-insure themselves which by definition, suggests they do not value themselves as highly as some of their possessions. In truth, the main reason for under-insurance is the fact that it is not compulsory.
Protection products have had to improve their image which has been achieved by a combination of competitive rates and flexible cover. Many people prefer the security offered by a level term assurance product.
This ensures that a specified sum assured will be paid in the event of a claim over a certain term for a guaranteed fixed premium. Others will prefer to have a reviewable contract which may offer cheaper cover initially but will inevitably increase in the future.
These contracts are sometimes known as "dread disease" policies and pay out on the diagnosis of a critical illness rather than on death. Although the scope of allowable claims has increased tremendously during the last few years, 80% of claims are related to a heart attack, stroke or cancer. Most people have sufficient cover in the event of their death, but their liabilities may not be cleared in the event of a serious illness. This is where critical illness policies come into their own.
This type of policy will provide a tax-free income in the event of long term incapacity. As with most insurance products, premiums and cover may be fixed or variable depending on your specific requirements. As a rule of thumb, it is normally possible to provide for a maximum of 50%-60% of your current earnings. Cover is available to the self-employed as well as employees but benefits will be related to proven earnings.
Most businesses' principal asset is its workforce but many businesses do not see the benefit of insuring this most valuable of assets. You should consider how you could cope following the death or long term incapacity of a senior member of your workforce. Companies and partnerships should also consider what contingency plans they have made to buy out a deceased director's or partner's share in the business should a claim be made by his or her surviving spouse.
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