Mouthy Money editor Edmund Greaves meets author and entrepreneur Robert Gardner to find out about…Read More →
Mouthy Money has started a new series looking at personal finance questions from readers. If you would like to ask a question about anything to do with your money, get in touch here.
This week we have a female reader in her mid 40s who has a question about income protection and writing a will.
Reader question: While I am currently renting (though hoping to buy a property with my partner in the near future) and don’t have children, I do have some savings. I was wondering what preparations I should make / protection I should get in case I was to fall seriously ill or die. Do I also need a will? CJ/London
Expert answer: This is a really common scenario, and we can break your question down into a few parts: your existing savings and the protection that you should have in place, plus whether you should write a will.
Firstly, let’s consider what protection you should have in place at this stage. You do not yet have a mortgage and I will assume that you do not have any other sizeable outstanding liabilities such as loans or credit cards.
You do however have monthly expenditure that needs to be covered each month; existing bills, rent, food and your monthly home deposit savings which are all being paid from the money you earn.
As such it would be prudent to insure your income so that if you did fall seriously ill, you would still have some disposable income to pay for your essential needs, rather than a plan that would pay out a single lump sum.
An income protection plan will do this and will typically cover approximately 55% of your income, with any pay-outs being free from Income Tax and National Insurance, and the benefits typically continuing to pay until you return to work, reach your retirement date or die.
There are a number of variations with income protection plans such as guaranteed or reviewable premiums, the amount of cover available and how long the benefits will be paid for, so it is worth speaking with a financial planner to tailor the cover to your needs.
If you did want to leave a legacy or cover some expenses upon your death, then you could take out some basic life insurance that at your age would still be cost effective. Before doing so, if you are employed, I would recommend that you ask your employer what benefits you have as part of your reward package.
Employees often receive a certain amount of life cover, income protection or private medical insurance from their employer’s benefits package. With no mortgage or children to leave a legacy for at this stage, then the life insurance through your employment package may be more than adequate.
Maximise your savings
Turning now to your savings. You have said that you are looking to use these for a house deposit within the near future, so investing and even tying the money up in fixed term accounts will most likely be unsuitable.
While locking your money within a fixed rate savings account may provide you with a higher level of interest than an instant access account, you will need to be sure of when you are likely to buy a house so that you can access the money when you need it.
Unfortunately interest rates are currently very low on cash deposits, but one option you could consider is NS&I Premium Bonds. This is a government backed account which allows you to hold up to £50,000 and contribute on a monthly basis.
With Premium Bonds, your money can be accessed at any time, and typically will be back in your account within a few days when requested, meaning that this could be a good option for you. No set rate of interest is given, but you are entered into a monthly draw to win monetary prizes ranging from £25-£1million (with the odds depending on how much you have in the account).
Get a will
It is never too early to put a will in place, and I always advise clients that the only way to ensure that their assets go to who they wish is by having a valid will. This said, you have a number of possible changes on the horizon that may alter a will and as such you should seek professional legal advice before putting one in place.
You mention having a partner so if you are not yet married, then the will should be worded in a manner that mentions future marriage, as without that it would be automatically revoked on marriage.
Likewise, it is always prudent to ensure you have completed an expression of wish form on any pension pots you have. This is an indicator for the pension trustees of who you would like to benefit from your pension should you die.
Gwilym Lloyd Jones is a chartered wealth planner and director of Beaufort Financial St Asaph & Chester. He is a Mouthy Money expert panellist.