PROTECTION & LONG TERM CARE
Life and Critical Illness Cover
How would your family manage financially if you had a critical illness? How would they cope financially if you died?
Life and Critical Illness cover are the traditional forms of cover for those looking to protect their mortgages and families in the event of critical illness or death and the good news is that it can cost you less than your morning coffee habit!
Life policies offer a way of providing financial security in the event of death. These can be taken as a whole of life policy i.e. it pays out whenever you die or a term policy – which only pays out if you die before a predetermined date/age.
Life policies can be taken out on an individual basis on either an ‘own life’ or ‘life of another’ basis and can be owned by either an individual or a company.
Using a life policy to cover your employees allows your business to offer them a valuable benefit. If you’re a Company Director, you can save up to 49% with a Relevant Life Policy compared to your current life cover, as policy premiums can be paid in more tax efficient ways.
Relevant Life Policies are suitable for Company Directors, small businesses that don’t have enough eligible employees to warrant a group life scheme and high-earning employees who have substantial pension funds and don’t want their death-in-service benefits to form part of their lifetime allowance.
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Income protection is a product that protects your income should you be unable to work for a long period of time due to illness or disability. Most income protection policies will cover you for a percentage of your income, making sure that there is a benefit for individuals to return to work. This cover provides reassurance that your family would be able to pay bills if you are unable to work or have a need to reduce your hours.
Immediate Need and Long-Term Care
The unfortunate reality is that one in three of us will need long-term care at some point in our lives. Learning that you have to go in to care can be distressing, both for the individual involved and close family members. In that scenario, the added uncertainty of how care will be paid for is an unnecessary burden. To tackle the problem, insurance providers have developed Immediate Need or Long Term Care Annuities.
An Immediate Need annuity policy can be purchased when an elderly relative is already in either residential care or a nursing care home, or is about to be admitted. The annuity is paid directly to the care provider for the life of the individual and the Inland Revenue enables this to be paid gross (no tax on the income).
A Long-Term Care annuity is underwritten individually for each client based on his or her age, sex, health and the income required. After a medical assessment, illustrations of the lump sum required to produce the needed income can be produced. In return for a single premium, a tax-free regular income will then be offered to the care provider of your choice.
Here are the pros and cons of long-term care annuity:
- It is tax free if paid directly to the provider
- Benefits are paid for life, providing you with the peace of mind you need
- The total cost of care is known
- Benefits can be moved from one care provider to another as required
- Premiums paid will reduce inheritance tax
- An escalation feature allows for the rising cost of care
- Options are available to protect up to 75% of the annuity
- If death occurs early, there may be some capital loss, although protection can be taken against this
- There can be cost shortfalls, even with capital protection, if home care fees rise very quickly
- The income produced will impact upon any means tested benefits gained due to disability, such as attendance allowance
- Once taken, there is no scope to change your mind
Other things to consider with regard to long-term care are whether you will retain the functionality to make your own decisions.
- Medical care
- Food and dietary requirements
- Individuals to be permitted contact with the individual
- Lifestyle arrangements, including social activities
LPAs become official in legal documents. Many people assume that a spouse or other family member can make decisions for them should they become mentally incapacitated, but that is not always the case. It may be the case that doctors are making medical decisions, for example.
There are very strict rules surrounding the use of LPA’s to ensure that the decisions that are made are in the best interests of the donor.