Lottery of Life

Critical Illness Insurance

What it does

Critical illness insurance pays out a tax-free lump sum on the diagnosis of certain life-threatening or debilitating (but not fatal) conditions including heat attack, stroke, cancer, and major organ transplants. This list will vary depending on the insurer, as will the exclusions for making a claim.

Critical illness often comes as an optional addition to a life insurance policy, but can also be purchased on its own. Policies usually only pay out once, so they don't necessarily replace your regular income, but you can use the money towards medical treatment, your mortgage or anything else you choose.

Why you might need it

Many people buy critical illness insurance when they take on a major commitment, like a mortgage, or start a family. However, since we'd all like to have our financial commitments lightened if we were to suffer a serious illness or injury, the cover is relevant for most of us at any time.

Replacing an existing critical illness policy

If you already have critical illness insurance you should think carefully before you cancel your existing policy and take our a new one.

For example, if you've developed any illnesses since you first took out the policy, you may lose some of the benefits when you replace  it. That's because pre-existing medical conditions may not be covered by the new policy.

Recent advances in the treatment of certain conditions, such as cancer, may also have an effect, as a new policy might be more restrictive than an older policy when it comes to paying claims for certain conditions.

A good financial adviser should be able to quickly identify the issues and help you make the right decision about your critical illness insurance.

Press Release: Ewing Associates is a Business Focus exhibitor

Ewing Associates is a Business Focus exhibitor
Ewing Associates has secured a stand at Business Focus, the region's premier business-to-business exhibition taking place at Peterborough Arena on Wednesday 17th October 2012.
Last year's sell-out Business Focus welcomed more than 700 visitors and exhibitors embraced the opportunity to promote their latest products and services to a targeted, receptive audience.
This year's event promises to be even bigger, and will showcase the region's success as the Business Environment Capital of the UK. Exciting new attractions include:

• The Eco House - a futuristic showhome inside the main exhibition hall
• The Secret Millionaire - retail consultancy CEO Mike Greene giving inspirational insight into a top-performing business
• Business Central - the latest innovations from selected exhibitors
• Foods of the World - the chance to refuel on sizzling cuisine from top regional caterers and suppliers

John Bridge OBE, Chief Executive of Cambridgeshire Chambers of Commerce, said: "Business Focus 2012 enables forward-thinking companies to communicate across Peterborough and the region and engage with new contacts. Those shrewd enough to book their places now, before the exhibition stands sell out, will be the ones that benefit most from this leading business-to-business event."
During the day, influential professional groups and organisations will be among the visitors, meeting stand-holders and talk about the business developments shaping this region. Visitors can attend the exhibition free of charge.
Sponsors of Business Focus 2012 are The Peterborough Telegraph, Peterborough Regional College, Larkfleet Group, Peterborough Arena and Peterborough City Council. The event is organised by Cambridgeshire Chambers of Commerce and The Business Club.
Business Focus takes place at Peterborough Arena, East of England Showground, Peterborough, PE2 6XE, on Wednesday 17 October, 9.00am-5.00pm. Entry for visitors is free on the day.
For further information, visit www.businessfocus.uk.net or call 01733 513002. Business Focus can also be found at www.facebook.com/BizFocus2012 and on Twitter #BizFocus2012

Why see a financial adviser?

As a company director, is your life insurance as tax efficient as it could be?

Relevant life policies are a type of life insurance for employers to provide employees with death benefits.

They can be very useful when there aren’t enough employees to justify a group scheme or, where an individual requires a greater level of benefit than the group scheme provides. As directors working day to day in a business are likely to qualify as employees, this can be a more tax efficient way for a company director to provide life assurance benefits for his/her dependants rather than paying for it personally or it being treated as a benefit in kind.

An example of relevant life insurance and its tax efficiency:

Mrs Anne Other is a shareholding director of A.Other Ltd, an engineering business, and currently has life insurance in place. She wishes to review her insurance as she and her partner are expecting their third child and they would like more cover.

Comparing the two plans that her financial adviser recommends, Anne doesn't hesitate to choose the Relevant Life plan. Below you can see the sums that made her decision easy.

The Relevant Life Plan is particularly beneficial for Anne because she’s the director and shareholder of her own business, so all the savings go to her. If she were to pay for her life cover personally it would cost her £1,569.65 every year. By buying her cover through the company using a Relevant Life Plan, it only costs £800 each year. That’s £769.65 less, which is a saving of almost 50%.

(This is a fictitious example, and also assumes that the Relevant Life plan qualifies as an allowable business expense, which it usually is)

What makes this plan so good for company directors?

• You can effectively make a big saving on life cover compared with paying for it personally.
• Premiums are normally classed as a business expense and so are likely to be an allowable deduction for Corporation Tax purposes.
• Premiums and benefits do not count towards your annual or lifetime allowance – particularly important if you have a large pension fund or wish to maximise your contributions into your pension.
• Keeping the plan in trust offers the potential to plan for Inheritance Tax if your estate is or is likely to be worth more than the current Inheritance Tax threshold.
• Offers a cost-effective way to provide Death In Service benefits to your employees.

Any limitations or drawbacks?

Relevant Life Plans are not available for sole traders, equity partners of a partnership or equity members of a Limited Liability Partnership.

It’s a Single Life Policy, which means each plan covers one person – you, for example.

There’s no option to include joint cover, such as for you and your partner, in the same policy.

How do I take advantage of a Relevant Life plan?

Speak to your financial adviser who should be able to discuss the features in more detail.

The financial regulator wants a change to the way financial products are sold. A reaction to Martin Wheatley's speech.

In a speech published today, the Managing Director of the FSA, Martin Wheatley says he intends to change the culture of how consumers are viewed and sold to by some financial organisations. This follows the recent PPI and loan mis-selling scandals, as well as other ativities which have tarnished the public's view of the financial services industry, such as Libor abuse and the mis-selling of interest rate products to small businesses. Mr Wheatley goes on to say:

But what is also still clear is that we need financial services more than ever. Most of us need to save more for our retirements, but many are not doing enough. And all of us need a strong, profitable financial services industry that can give us the advice we need to guide us, that can help to protect us from the unforeseen, and that can deliver the products that will help us achieve our life goals.

I completely agree with this; it not only explains why the industry needs to be ethical, but also any business which correctly identifies and plugs such gaps in people's lives will be contributing to their own long-term success by doing so. But what does concern me is how the FSA or the FCA might further restrict the ways in which good quality, relationship-based financial advisers can operate, potentially resulting in fewer people receiving important financial advice.

Although Mr Wheatley's focus appears to be on the non-advised arena that consumers will most likely encounter on the web and along the high street, the ideas he presents are high-level and therefore rather general. At this stage it's difficult to ascertain whether protection products such as life insurance, critical illness, and income protection will ultimately be affected by these plans. If they are, then it's important to get the balance right between protecting consumers from unscrupulous salespeople and not hindering, but rather improving accessibility to and awareness of good financial advice.

Pricing Customers Out

If advisers were no longer allowed to be remunerated by providers of protection products this would inevitably lead to a fee-based system similar to that for investment advice following changes brought about by the Retail Distribution Review (RDR). The problem with this approach for protection, is that few consumers actively seek protection advice. I suspect even fewer would be willing to pay a fee for it, especially if protection and life insurance can still be bought on a non-advised basis direct from providers over the internet, for example.

If we did reach such a situation it would likely lead to more consumers buying cover which may not be best suited to their needs (e.g. paying more for level term when only decreasing mortgage protection is required; creating a potential inheritance tax issue; not correctly assessing what sums insured are needed for family protection; not writing policies in trust and thereby failing to avoid probate delays). Or, worse still, we could see more people not taking out any cover at all and leaving their families unprotected because of a public perception that advice is too costly.

The Best of Both Worlds

To ensure protection customers continue to receive the best outcome, I believe that insurance providers  should continue to pay advisers for finding their clients. This way, advice and recommendations can still be offered with no fee required from the customer. Upfront fees would no doubt alienate a large proportion of the public who might otherwise have benefited from protection.

What I think is key to improving the service which consumers receive, is that non-advised selling of protection products should cease. This would ensure that all protection customers have received advice on what is right for their present circumstances. Every policy written should have evidence of its suitability for each particular client, including less/more expensive alternatives that were available yet not appropriate, features which were included/excluded and why they were/weren't right for the client.

This would result in the best of both worlds for consumers: no fee means a similar proportion as at present would still perceive financial protection as an accessible and affordable avenue to explore; and offering protection on an advised-only basis minimises the opportunity for mis-selling (due to current methods of quality monitoring) as well as providing all the added benefits of the advice process.

Let's hope, for the sake of consumers and their families, the FCA see things from a similar perspective.

Trusts. What are they, and why use them for insurance?

It's often said that less than 10% of life insurance policies are written in trust. Although not all policies are suitable for writing in trust, this still leaves a large number of policyholders who haven't taken advantage of this simple option. In this post, I'll explain what a trust is, the benefit of putting one in place, and question why more policies aren't in trust.

What exactly is a trust?

A trust is a relationship recognised by law whereby something is held by one party for the benefit of another. In respect of life insurance, there are normally three parties involved: the settlor (the policyholder); the trustee/s (the person/s to whom the insurance company will pay a claim); and the beneficiary/ies (the ultimate recipient of the money as intended by the policyholder). This may sound complex, in fact they are anything but: they simply allow someone to pass property on to another person at some point in the future.

Why write life insurance in trust?

There are several reasons to write life insurance in trust.

1. Avoid probate delays. Probate is the legal process which must be completed before your estate can be distributed. This can take anything from a couple of months up to a year, and beyond in some cases. Probate delays can present a problem if an insurer has paid money into your estate and your family requires it sooner rather than later.
2. Reduce an inheritance tax (IHT) bill. Benefit payed from a life insurance policy written in trust can be paid outside of your estate for IHT purposes.
3. A trust enables you to choose your beneficiaries, thereby remaining in control of your assets.
4. Being a simple process (often no more than a one page form), it is normally free of charge set up a trust.

So, why don't more people have one?

Most people I speak to who haven't written their life policy in trust simply weren't aware of trusts and their benefits. With people buying policies over the internet or from direct insurers on a non-advised basis, it may be some time before people are fully aware of their benefits.

Check your existing policies.

If you have a life insurance policy, and are not sure whether it is written in trust or not, it is worth checking. You can do this by asking your insurer or speak to a financial adviser.

Could you cope financially if you were diagnosed with a serious illness?

Some things are more reliable than others - monthly bills, for example. Young or old, single or married, we all have financial obligations to meet each month; be it luxuries, like a satellite TV subscription or mobile phone contract, or the real essentials – like keeping a roof over your family's head. But some things - like our long-term health - can be less reliable. More than 1 in 3 people in the UK will develop some form of cancer during their lifetime, according to Cancer Research UK. If you became critically ill and were unable to work, those monthly expenses would still need to be covered if you wanted to maintain your lifestyle. Ask yourself: could you cope financially?

Better protecting your finances

An important part of financial planning is to ensure your protection arrangements remain appropriate for your needs. Many people take out life insurance which provides valuable cover and and is designed to pay out in the unfortunate event of your death. But by taking out Critical Illness Insurance, you could receive a tax-free lump sum or monthly income should you suffer a serious illness or a major injury. This could help towards paying off your mortgage, meeting monthly household bills, covering additional medical expenses, reducing the financial impact if you were unable to return to work - or anything else you might chose to spend it on.

Insurance premiums set to increase

Now is also a great time to review your protection needs. At the end of this year, new legislation will require insurance companies to ignore an individual’s gender when calculating premiums. This is expected to result in price rises for men and women in most cases – including for critical illness insurance. It’s therefore important you check your current financial protection needs before this change takes effect. The pricing changes may well lead to a rush of applications to insurance companies in the latter part of this year therefore contact your financial adviser now to help prevent you being caught out by this.

Act now to ensure you are financially protected

To ensure you and your family are financially protected, and to beat any price increases, it would be prudent to review your protection needs at the earliest opportunity. I have found that people tend to put off taking out insurance, as we all have seemingly more urgent, and sometimes more interesting things that need doing. And that is completely understandable. So, while the intention is in your mind, why not pick up the phone now, call your financial adviser, and ask for a protection review.

Losing sight of everyday threats could put your business at risk

If you are a business owner or a director, you are no doubt working harder than ever to steer the company through this difficult trading period. As result, your thoughts may be more focussed on the short-term needs of the company more than usual.

But it’s more important now that you don’t lose sight of the ongoing threats to your business – threats that could have an impact as severe as any market downturn.

Protecting your most important assets

If a director, co-owner or key individual within your business were to die, or become critically ill, it could have a serious impact on your company’s ability to trade. For instance:

• How would the loss of their expertise and experience impact the business?
• If they are a shareholder, what would happen to their shares? Could the business afford to buy them back?
• How would your debtors and creditors react? Would loans be called in?

You probably already protect your company’s material assets, like premises, vehicles and equipment. Surely it makes sense to also protect the company’s most important assets – its people.

How you can obtain help

Some financial advisers often work with businesses offering advice on how best to protect them from the financial impact of unforeseen events.

There is a range of products that can give you peace of mind when it comes to the long-term stability of your business.

If it has been several years since, or if you have never conducted a review of your business's protection requirements, it would be a good idea to find a financial adviser who specialises in this area for an appointment. Don't leave your business unprotected until it is too late.

Life Insurance Premiums Expected to Rise

From 21 December 2012, changes to the EU Gender Directive will mean insurers will no longer be able to use gender as an underwriting factor when setting premium rates. This change will affect all types of personal insurance with life, motor and annuities being among the most significant.

It's sensible to ask your financial adviser for a review of your protection needs before the end of September, as in most cases, life insurance for both men and women will increase (significantly for some) from December. Those who take out a policy before the Gender Directive, will lock in their premiums at this year's prices. Waiting until next year could cost women 22% more for term life insurance, as a compounding factor is also a change to the "I minus E" rule.

From 1 January 2013, life companies will no longer be able to offset the costs of selling life insurance against investment income. This is known as the Income minus Expenses or “I minus E” rule, which many life companies use to subsidise their protection premium rates. As a result, premiums could increase by approximately 10% to compensate.

The perfect storm of gender neutral pricing and I-E will result in life rates rising for the majority, with insurers likely to wrap up rate changes to cater for both gender and I-E together.

Top Tips

1. Speak to a specialist adviser now. You need to allow enough time for underwriting, as you will need to be accepted on cover before the 21 December. In some cases underwriting can take several months, so make sure you speak to a good financial adviser, or a specialist protection adviser as soon as possible.
2. Tell others you know who have gone through a life change recently (e.g. marriage, divorce, birth of a child, mortgage) to ask an adviser to review their insurance as soon as possible.