Why you should make a Will

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In the United Kingdom, creating a will isn’t just a legal formality – it’s about making sure your loved ones are taken care of just the way you’d want, even when you’re no longer around. Despite its importance, many people put off making a will, thinking it’s too complicated or they’re not wealthy enough to need one. But trust me, taking the time to make a will is one of the best things you can do for your family and your peace of mind.

First off, having a will means you get to decide who gets what when you’re gone. Without one, the government decides, and it might not match up with your wishes. Whether you have a big estate or just a few belongings, having a will ensures everything goes where you want it to.

Another perk? You get to pick someone you trust to carry out your wishes as the executor. This person will handle all the details, like gathering your assets and making sure your debts are paid off. Choosing the right executor is key to making sure everything goes smoothly.

Plus, if you have kids, a will lets you name a guardian for them. That way, you get to decide who’ll take care of them if something happens to you. It’s a big relief knowing your little ones will be in good hands.

And let’s not forget about taxes. With some smart planning in your will, you can actually reduce the amount of inheritance tax your loved ones will have to pay. That means more of your hard-earned money stays in the family.

So, bottom line? Making a will isn’t just for the rich and famous – it’s for anyone who cares about their family’s future. It’s a simple way to provide clarity, security, and peace of mind for those you love most. So why wait? Take the first step today and start crafting your will. Your family will thank you for it.

Navigating the ISA Landscape for the 2023/24 Tax Year in the UK: A Comprehensive Guide

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As the financial landscape evolves, Individual Savings Accounts (ISAs) continue to be a popular choice for UK residents seeking tax-efficient ways to grow their wealth. As we step into the 2023/24 tax year, let’s explore the ins and outs of ISAs, from contribution limits to tax benefits, helping you make informed decisions to secure your financial future.

Understanding ISA Basics:

  1. Contribution Limits:
    • For the 2023/24 tax year, the annual ISA allowance remains £20,000. This cap encompasses contributions across all types of ISAs, including Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs. It’s important to note that any unused portion of your allowance cannot be carried forward to the next tax year.
  2. ISA Types:
    • Cash ISA: Ideal for those who prefer a secure, interest-bearing account. The interest earned within a Cash ISA is tax-free.
    • Stocks and Shares ISA: Suited for investors looking to grow their wealth through stocks, bonds, and other investments. Gains and income generated are shielded from capital gains tax and income tax.
    • Innovative Finance ISA: Tailored for peer-to-peer lending or crowdfunded investments, providing a tax-efficient way to earn returns on your investments.
    • Lifetime ISA: Geared towards those saving for their first home or planning for retirement, the Lifetime ISA allows individuals to save up to £4,000 annually, with the government adding a 25% bonus.

Tax Benefits of ISAs:

  1. Tax-Free Growth:
    • All returns generated within an ISA, be it interest from a Cash ISA or gains from a Stocks and Shares ISA, are shielded from income tax and capital gains tax. This provides a significant advantage over taxable accounts, allowing your investments to compound without the drag of taxes.
  2. Flexibility and Accessibility:
    • Unlike traditional pension schemes, ISAs offer flexibility in accessing your money. Whether you’re saving for a home, a rainy day, or retirement, ISAs allow you to withdraw your funds without penalty. However, for Lifetime ISAs, penalties may apply if funds are withdrawn for purposes other than buying a first home or after the age of 60.

Who Can Have an ISA?

  1. UK Residents:
    • ISAs are available to UK residents aged 16 and over for Cash ISAs and 18 and over for Stocks and Shares ISAs. Lifetime ISAs have specific eligibility criteria, requiring the account holder to be between 18 and 39 years old.
  2. Non-Residents:
    • Non-UK residents can keep existing ISAs open, but they are generally unable to contribute further while living abroad.

Conclusion:

In the 2023/24 tax year, ISAs continue to be a versatile and tax-efficient tool for UK residents aiming to build and protect their wealth. By understanding the contribution limits, the tax benefits, and the eligibility criteria, you can make well-informed decisions that align with your financial goals. Whether you’re a seasoned investor or just starting your savings journey, leveraging the benefits of ISAs can pave the way to a more secure and prosperous financial future.

Compulsory Financial Education?

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Just a quick post as I am off for the long Bank Holiday Weekend, but I have been reading an interesting post by Lee over at FivePencePiece on the need for Compulsory Financial Education in our schools.

I wholeheartedly agree with Lee – we received not a single piece of guidance on personal finance whilst I was at school. it is quite obvious that the general level of financial education in the UK is low. Please read Lee’s article and support his efforts.

Simon

New passport fees announced – act now to save 7.64%

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The cost of a UK passport is to rise – by acting now you can save money on this necessary purchase – every penny counts in the current economic climate.

The cost of a 10 year adult passport will rise from £72.00 to £77.50 – a rise of £5.50 or 7.64% of the current price. This increase in price is due to come into effect on 3rd September.

The cost of a child’s passport will also rise – from £46.00 to £49.00 – a rise of £3.00 or 6.52%.

There is therefore a saving to be made by renewing or applying for a passport ahead of this price increase date on 3rd September 2009.

Did you know?

You do not have to wait until your passport expires to renew it – within 9 months of it expiring, any unused time will be carried over onto the new passport – renewing your passport.

More information on the price rise here.

Conclusion

Although it’s not a large monetary saving, renewing or applying for your passport before the 3rd September will save you from incurring the large, above inflation increase in passport price.

Waiver of Contribution

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Waiver of contribution is one of those options usually available under a life insurance or critical illness plan which many people may not be aware of.

It may be mentioned by the financial adviser when the sale is being made but often it is not included for one reason or another.

What is Waiver of Contribution?

Quite simply it allows the premiums (or contributions) to be “waived” on a life insurance or critical illness plan in the event of the life assured not being able to work through accident or sickness.

There is usually a “deferred period” before this option kicks in – normally in the order of 3 months. After this period, if you are still off work then the benefit of the waiver starts and you no longer need to make regular payments into the plan.

This benefit continues until one of the following events occurs – return to work, make a claim under the policy or the policy ends.

So why is Waiver of Contribution so important?

Consider the situation – you have not worked for a long period of time due to ill health – it must be serious to keep you off work for such a long period of time.

It is at times like this that you actually need the life insurance or critical illness cover more than ever – it is also at times like this that you may not be able to afford to continue paying premiums, either through an increase in expenditure (medications, treatment, partner losing time from work to look after you etc) or a decrease in income.

Waiver of contribution gives peace of mind that your protection arrangements can remain in place at the time that you most need them to be in place.

Shrewd Action

Always consider the benefits of adding waiver of contribution to any life insurance or critical illness plan you take out.

Have you made a claim under waiver of contribution? If so, please let us know of your experience below.

Critical Illness Cover v Income Protection

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In this article we will compare income protection insurance to critical illness cover and consider how they can be used together to protect your financial position.

Critical Illness Cover or Income Protection?

Many people ask whether it is more appropriate when considering insuring against ill health to take out income protection insurance or critical illness cover.

We think the confusion arises as many people seem to believe that the two types of insurance do the same job and fulfill the same need. Before considering this in more detail lets just recap on what each type of insurance is and how it works.

Income Protection Insurance

Income Protection Insurance, previously known as Permanent Health Insurance (PHI), is designed to provide the person covered with a replacement income in the event that they are unable to work through accident or ill health. It is not to be confused with ASU (Accident, Sickness and Unemployment) which generally pays out a benefit for a maximum term of 12 months.

After a deferred period (period between telling the life company about the illness and the cover commencing payout) the regular tax-free income is paid to the life assured until the earlier of return to work, death or retirement.

The income can be level or indexed, i.e. it increases each year, either in line with RPI or a fixed percentage, to maintain the real value of the policy.

Critical Illness Cover

Critical Illness Cover (CIC) pays out the sum assured when the life assured is diagnosed as suffering from one of a range of critical illnesses.

Cover is normally provided for a “core” range of illnesses as set out by the Association of British Insurers Statement of Best Practice – covering such illnesses as cancer, stroke, heart attack, kidney failure, major organ transplant, multiple sclerosis and coronary artery bypass surgery.

In addition to this, the majority of policies also cover “additional” conditions such as blindness, coma, loss of limbs, loss of speech, Parkinson’s disease, benign brain tumour, paralysis, terminal illness, third degree burns to name but a few.

The policy can be taken out for a fixed term or whole of life on a single or joint life basis

Income Protection and Critical Illness Cover – complementary policies

To put this into context we need to consider the following basic points of each type of cover: –

1. Income protection = regular income if unable to work through accident or sickness
2. Critical Illness Cover = lump sum payment on diagnosis of one of a number of critical illness conditions.

It is therefore possible to see that depending on the nature and severity of the illness it might be possible for the policyholder to claim one or both policies.

Off work sick – but not critically ill

An illness may be severe enough to prevent you from working (thereby making a claim under the income protection plan) but not one of the listed conditions for claim under the critical illness plan.

Critically Ill but able to return to work after treatment

An illness may be critical e.g. cancer, but not such that in the event of successful treatment of the condition it is feasible that the life assured could return to work after a period of time maybe a year or so – but not long enough to really benefit from making a claim under an income protection plan.

The income protection plan may also provide proportionate benefit in that if the life assured returns to work on a lower salary as a direct result of having suffered their illness they may be entitled to continue receiving some of the benefits payable under the income protection plan

Summary

In conclusion, we would consider critical illness cover and income protection insurance to be complimentary in their nature and therefore it would be wise to consider taking out both types of insurance.

Naturally you should consult an Independent Financial Adviser before purchasing either of these types of insurance as they will be able to research the marketplace for you and make suitable recommendations based on your own particular circumstances.

We would welcome any comments you wish to make below.

Income Protection Insurance (PHI) – an introduction

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Many people have heard of income protection – yet many remain unsure exactly what it is and how it can be used to protect their family and themselves.

What is Income Protection?

As the name suggests, Income Protection Insurance, previously known as Permanent Health Insurance (PHI), is a type of insurance which is designed to replace lost income in the event of long term illness or accident.

Unlike Mortgage Protection Insurance and ASU cover, which usually pay an income limited to 12 months, Income Protection Insurance is designed to pay replacement income right up until retirement in the event of the claimant being unable to return to work.

How much Cover can I get?

Life companies will normally cover you for between 50% and 60% of your pre-disability income. In the event of a claim they will normally deduct any continuing income or state single person long term disability benefit.

A claim once in payment under an Income Protection plan is normally paid free of UK income tax.

Under what Circumstances will a Claim be paid?

This is dependent on the basis on which the plan was originally set up: –

Own occupation – pays out if unable to perform your own occupation as disclosed on the application form

Any occupation – pays out if you’re unable to work at any occupation, normally based on work in line with your education and training

Activities of Daily Living – this type of plan pays out if you are unable to perform a number of task – such as eating, dressing, using the toilet etc – you need to be unable to perform a number of tasks from a range of tasks stated by the insurance company – e.g. any 2 from a range of 6 tasks.

Own Occupation cover generally carries the highest premium rates – and may not be available for riskier occupations e.g. working at heights, with explosives, dangerous occupations etc.

How Soon Can I Claim?

You normally submit your claim as soon as you stop working. The payout on the plan will not start until the end of the “deferred period” – you choose this at application – e.g. one month, three months, six months, twelve months.

Warning – the deferred period can in some instances commence from the date of notification to the life office, NOT the first day of sickness – make sure you don’t wait too long to tell them of a claim.

Naturally the longer the deferred period, the lower the premium, since you are less likely to make a claim on the policy.

What About Inflation?

You can set up your plan to allow for annual rises in the cost of living and most people opt for this benefit – your level of cover generally rises each year with a corresponding rise in the monthly premium to offset the general increase in the cost of living over time.

What About if I am Well Enough to Return to Work?

Normally your claim stops but you carry on paying premiums and your policy continues – the insurance doesn’t end.

There are various options under these plans which may be available: –

Proportionate benefit – if you returned to work in a lower-paid position as a result of your illness then a proportion of the benefit may continue to be paid

Rehabilitation benefit – if you returned to work after a period of illness and your income falls, then this benefit may pay a proportion of your cover to cover the loss of income and this benefit normally pays for up to 12 months.

Linked Claims – if you return to work following illness, and subsequently have to stop working due to the same condition then this benefit means you don’t have to go through the same deferred period again and the claim payout can recommence without delay.

Choosing a Policy

We believe that income protection insurance is vitally important for all individuals – especially those who do not have any cover through their employment and, in particular, the self-employed.

Most people are dependent on their incomes – simply ask yourself this question – “how long can we survive with no income?”

Naturally every policy is different so it is therefore important to take advice from an Independent Financial Adviser.

In our next article we will consider this type of cover in more detail and the practical uses to which is can be put

Please share with us your experiences and thoughts on income protection insurance below.

Critical Illness Cover – an introduction

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Many people today are not only insuring themselves against death but also against critical illness.

What is Critical Illness Cover?

As the name suggests, critical illness cover pays out a tax-free lump sum in the event of diagnosis of a critical illness. In order to claim, the life assured needs to be diagnosed with a critical illness listed amongst those covered by the life insurance company.

Which Illnesses are Covered?

Most providers today provide cover for a comprehensive range of critical illnesses. The Association of British Insurers has published standard definitions for critical illness policies to which most life insurance companies adhere.

There is a “core” range of conditions covered which are:

Cancer
Coronary Artery By-Pass Surgery
Heart Attack
Kidney Failure
Major Organ Transplant
Multiple Sclerosis
Stroke

In addition to this group of “core” conditions there also exists a range of “additional” conditions.

Aorta graft surgery
Benign brain tumour
Blindness
Coma
Deafness
Heart valve replacement or repair
Loss of limbs
Loss of speech
Motor neurone disease
Paralysis/paraplegia
Parkinson’s disease
Terminal illness
Third degree burns

Not all life insurance companies will provide cover for all illnesses; they may indeed provide cover for illnesses which are not listed.

The important thing to bear in mind is that a claim is payable based on diagnosis and acceptance by the life insurance company. Should you subsequently be cured of the condition you have claimed for then there is no need to repay the sum assured which has been paid out.

Why should I take out Critical Illness Cover?

With advances in medical science it is now more likely than ever that you may be successfully treated for a number of critical illnesses which only a few decades ago would have been fatal. The question you need to ask yourself is, how would you cope financially if you were to “die just a little”. Here are some of the uses to which a payment from a critical illness policy could be put:-

Repayment of loans and mortgages
Replace lost income (especially if self-employed)
Treatment and convalescence
Cover salary of spouse/partner who takes leave from work to care for you
Pay for amendments to home e.g. downstairs bathroom, wheelchair access

The list is endless and needs to be considered in respect of your own personal and family situation.

What types of Policy are Available?

Critical Illness cover can be taken out on a term or whole of life basis, providing cover for single or joint lives assured. It can be taken out alongside life insurance, or as a stand-alone policy in its own rights.

Another option available is a “family income policy” by which the policy pays an annual income in the event of a claim – e.g. A 20 year plan for £30,000 per annum – successful claim in year 7 – the plan pays £30,000 per year to the claimant until the end of the 20th year.

Claims Experience

As more and more people take out critical illness cover, the level of claims has risen. For example, Legal and General recently published its claim figures for 2008 which showed that they paid out total claims of £146 million, with 93% of claims being accepted and their average claim being £70,000. More information on this can be found here.

Getting the Best Deal

When buying critical illness cover it is important to remember not to buy it based on lowest premium – you need to compare the different types of cover available, the conditions covered (together with definitions) and the claims experience of the various life insurance companies. We strongly recommend that you take Independent Financial Advice in this area before making a purchase.

Our next article on critical illness cover will consider further the benefits of such plans and the different purposes to which critical illness cover can be put.

We would welcome your comments on critical illness cover – do you own any? have you claimed on a policy?

Term Assurance – an introduction

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Introduction

Term assurance is the most basic form of life assurance. As the name suggests, the policy runs for a fixed term.

There is no investment element to a term assurance policy – it is pure insurance – unless you make a death claim then the policy ends at the end of the term and you get nothing back.

Types of Term Assurance

Essentially there are three types of term assurance.

Term only – this provides cover for a fixed term, and if no claim is made, cover ends at the end of the term.

Convertible Term – this is a term assurance policy with a fixed term, but also included is the option to convert to “whole of life” assurance at any time during the plan. The conversion normally occurs without any further medical underwriting; assuming the same level of cover is applied for.

Renewable Term – again a fixed term contract, but with the option to renew a for a further identical term at maturity

How can they be set up?

It is possible to have single life and joint lives assured. So, for example, a husband and wife could take out two single life plans or a joint life, first death plan. With a joint life plan, on first death the proceeds from the policy are normally paid to the surviving life assured.

It is possible to take out two single life term plans, and write them under a suitable trust, for the benefit of spouse and/or children. The benefit writing a single life plan in Trust is that the proceeds from the policy do not enter your estate, where they could be delayed in being paid out, for example to redeem a loan or to provide for your children, due to the need to obtain probate which can take up to and sometimes in excess of 6 months.

We will cover more on Trusts and their uses in a later article.

When do they pay out?

As well as paying out on death of the life assured, modern plans may include “terminal illness” benefits – what this means is if you are diagnosed with an illness which, in the opinion of medical professionals, reduces your life expectancy below 12 months then the plan will pay out the sum assured ahead of your death.

The benefit of this is that you then have time to ensure the proceeds from the policy are used for the purpose which you intended and allow you to get your affairs in order ahead of your passing.

Cover Types

It is possible to set up plans in a number of ways: –

Level cover – the sum assured (amount of cover) remains constant throughout the term of the plan
Indexed cover – the level of cover increased each year, in line with a fixed percentage, to maintain the real purchasing power of the sum assured
Decreasing cover – often taken out at the same time as a repayment mortgage – the level of life cover decreases over time in line with the mortgage profile.

In the next part of this article we will consider the various options which can be included within a term assurance policy as well as the different uses and some special types of term assurance which are useful financial planning tools.