Dan Atkinson APP Chartered MCSI, head of technical at Paradigm Norton Financial Planning and chair of the CISI Paraplanner Interest Group, explains the value of protection to a financial plan
Book your place on the CISI Paraplanner Conference.
Earn 6.5 hours CPD
Free for members.
£99 for non-members.
Money matters, but life matters more. Chance encounters, personal connections, and (to an extent) the unexpected all contribute to what the French would call ‘joie de vivre’. We use our money to serve these desires, as well as the more mundane side of life. We should also use our money to provide security, space, and options if the unexpected brings pain rather than joy.
While a financial plan can’t stop painful events, it can help provide options and space to reflect and regroup if they happen.
There are three key solutions we can include in a financial plan to help our clients manage the impact. It could be helpful to frame them as ways of funding the options, reflection, and regrouping mentioned above. Financial protection is about more than simply paying off the mortgage.
If a change in health means that a client can’t work for a prolonged period, their income is likely to stop. Their emergency fund provides a short-term buffer, but longer term their expenditure will need to be funded elsewhere. This not only reduces the money they have available to spend later but also stops them from saving for that future where work is less important for life.
Income protection provides some continuity of income, enabling clients to focus on their health rather than their finances. Spending less of their savings means that it’s still there for the future when they need it to fund life.
Critical illness cover
Processing and adapting to these situations often takes time as well as money. Some changes might be practical. Spending money today that was earmarked for tomorrow will require future adjustments.
Critical Illness cover provides funds to enable your client to keep their options open. This might be to pay for building work, support a sabbatical, or launch a new business.
This won’t bring back a loved one, but it does provide space and options to those who are left behind. Some financial commitments may become a heavy burden, so providing money to settle mortgages and other debts (including inheritance tax) is welcome.
Money from life cover provides the choice whether to return to work, or take some time out to regroup first. Using this money leaves other money available for clients’ future plans, whatever they might look like.
Financial protection is a way of funding time for recovery, reflection and regrouping. It helps preserve the resources which are planned to be drawn upon in the future. As such, it should be considered as part of every client’s financial plan.
The original version of this article was published on Paradigm Norton’s site. Adapted and republished with permission.