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Insurance Planning

Make protection a priority
Every day in the news, we are bombarded with stories of loss and tragedy. I often find myself thinking of the family members who are left behind when someone suddenly dies. The emotional impact of the death or disability of a loved one is traumatic in itself. However, amidst their grief, families affected by tragedy must continue to pay their bills, care for children and attend to mundane financial considerations. If the primary earner of a family dies prematurely or is seriously disabled, this can have a catastrophic effect on a family’s financial stability.

When is the right time to purchase insurance?
For young families, insurance can seem low priority compared to other expenses like school fees or mortgage payments. In addition, at that stage of life, the risk of being affected by a premature death or disability is low so it is tempting to avoid confronting one’s own mortality (premature death) or morbidity (disability) risk. However, insurance is more cost effective if you purchase a policy whilst young and healthy. I find that most young professionals rely on employer benefits to provide their insurance protection, but this strategy has drawbacks. First of all, if one changes jobs or is terminated, he or she may be without comparable benefits. Second, most group benefits are structured on an annually renewable basis; this means the cost of cover increases each year as the individual ages. Third, the benefits from group cover may be taxable in the event of a claim. In contrast, a personally-owned policy remains in force in the event of a job change, locks in the premium rate for the coverage period, and benefits are received tax-free.

Do I still need insurance as I get older?
Protection needs change over time. For example, once an individual reaches retirement, he or she will no longer require income replacement and may not need life cover to provide a lump sum for the family’s ongoing welfare if they have accumulated sufficient assets to address this need. That said, while a robust balance sheet can create financial security, it can also trigger exposure to inheritance tax or estate tax. At this stage of life, insurance can be a useful tool to help mitigate the erosion of one’s wealth due to this type of tax and maximize a person’s legacy. Insurance as an estate planning tool is attractive in that it facilitates lifetime gifting (via the ongoing premiums) and leverages those dollars or pounds to purchase a tax-free future benefit.

How do I figure out what coverage I need?
Talk to your wealth adviser. Protection planning should be part of your ongoing wealth plans. This involves reviewing your current cover (if applicable) and adjusting for your total need based on age, dependents, income, expenditure, etc. If your coverage needs involve more comprehensive estate planning work, it will likely be necessary to involve an attorney who can help draft any legal documents such as insurance trusts.

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Risk Warnings and Important Information
The value of investments can fall as well as rise.  You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice.  MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.


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