Your money for your life

Insurance won't make you rich, writes Nic Cicutti, but it may keep you out of poverty
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The Independent Online
Curious, isn't it? Most of the times we think about money, the first thing that comes into our minds is how to make more of it. By comparison, the issue of protecting what we already have comes a poor second. This is not so much a question of greed versus need, more a reflection of how we see our day-to-day priorities. After all, we can always do with more money and - we might even joke - what is there to protect for most of us?

Quite a lot, actually. It is not simply any earthly possessions we may already have, important though they are.

By the time we have reached a certain age, most of us have also taken on a series of different responsibilities. We may be married and have children, or have elderly relatives to care for. Even if single, we probably have a mortgage. For most of us, work pays the bills. But what would happen if, for any reason, we were to fall ill and be unable to work? And what happens in our old age, when we need looking after?

The chances of some or all of this happening can be surprisingly high. Although we would like to believe it were possible, it's unlikely our entire careers will be unaffected by ill health. For most it will be a temporary inconvenience, but for others it will create financial havoc.

To compound the situation, employers rarely guarantee sick pay beyond a few months and the plight is even worse for the self-employed. Here, there is a tendency to assume that in a serious emergency the state will step in. This was never exactly accurate and is even less so today.

Support from the state for a long-term incapacity is just meant to provide a basic safety net. Under its incapacity benefit, where a claimant's eligibility is first assessed by an independent board, an adult is entitled to pounds 47.10 a week for the first 28 weeks, which rises to pounds 55.70 and then pounds 62.45 after 53 weeks.

Where funding is concerned long-term care is provided by local authorities who make contributions based on the financial merits of each case. They are obliged to provide care costs in full where the individual's assets, including the family home, are less than pounds 10,000. They will subsidise cost for someone with assets valued at up to pounds 16,000, while they have the legal right to expect anyone over this limit to meet their own costs. As the costs of being in a nursing or residential home can be up to pounds 30,000 a year, this could drain assets accumulated over a lifetime very quickly.

When it comes to the death of an income-earning partner, the most a widow with children under the age of 19 can expect is pounds l,000 as a one-off payment, plus a weekly widowed mother's allowance of pounds 62.45 topped up with pounds 9.90 per week for the eldest child and an additional pounds 11.20 per week for each subsequent child.

In a few cases, families may receive a lump sum from an employer's corporate life insurance cover. But a recent survey by Legal & General found that life cover in the workplace extended to only 24 per cent of male respondents and just 4 per cent of women.

However, in almost every case, it is possible to remedy the situation through the use of various types of insurance. Life insurance cover at its most basic is easily understood: you pay a premium each month and if you die your family receives a certain lump sum. But things have developed further since then. Critical illness cover, for example, pays out instant lump sums in the event of diagnosis of a number of life-threatening diseases. Long-term care cover offers payments to individuals if they are unable to perform two or three out of five functions, including being able to dress oneself or walk unaided.

Private medical insurance allows people to choose when they wish their ailments to be treated instead of relying on the NHS. While many employers offer permanent health insurance, which replaces a certain percentage of lost earnings with a monthly tax-free income, either for a set number of years or until retirement. Such policies are also available as stand- alone options from insurance companies.

And it is also possible to obtain cover against the possibility of redundancy, with a monthly lump sum payable for up to 12 or 18 months usually being enough to meet the cost of the mortgage plus any other associated household costs. In most cases, the need to take out all these different types of cover is not necessary.

Just one or two types will be enough, depending on personal circumstances. A pick-and-mix approach is not only feasible but necessary to get the best value from your insurance.

Space permitting, over the next few weeks, we intend to explore each of these options in more detail. Meanwhile, it may be reassuring to know that although insurance may not, in itself, make you rich, it can - in an emergency - allow you to keep hold of what you already have. At a price

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