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don't leave it to chance I
Don't leave it
to chance - talk before it's too late. Here's the dilemma - should you
pay for something that you know you have absolutely no chance of ever directly
benefiting from? The logical answer is 'No'. However, if we said that the
money was to pay for life cover, would that change your reply? Only you know
the answer to this, but in many cases people would still say 'No'.
Excuses, apathy or both - The two most
common reasons given by people without any life cover or insufficient levels
of cover are that they can't afford it or they don't need it. However, almost
all of us need life cover, regardless of how wealthy we are. The simple fact
is that most of us live up to our means. Therefore, the more we have, the
more we have to lose! As for the argument that it is not affordable - well,
in most cases we can't afford not to have it. In reality, the true reason
for individuals not having enough life cover is apathy.
Financial hardship - It is estimated that
many families have no life cover or are under-insured, putting dependents
in a potentially very vulnerable position. Couples with families (especially
young families) have the most need for life cover. If the main wage earner
dies and has no protection or insufficient cover in place for the remaining
members of the family, then severe financial hardship could be just around
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Who will pay the bills? - Even if the
mortgage is fully protected, the family will still require an income following
the death of a breadwinner. They will still need to pay the household bills
and find money for family holidays, running the family car, school fees and
the usual day-to-day living expenses. Would any of us really want our loved
ones to take a dramatic reduction in lifestyle for the sake of a few pounds
a day? So, looking at it logically, if we can find the money to pay for our
car, and our contents and building insurance, then does it not make sense
that we should find the money to protect the one asset that funds everything
else - our own life? The Financial Services Authority does not regulate some
types of protection policies.
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It's just a matter of trust - Many people
believe that trusts are only used by the seriously wealthy, who have complicated
financial affairs. However, this is not necessarily the case.As more of the
population see the value of their estates increase, fuelled by the rise in
property prices, there is now an even greater need for you to plan for
inheritance tax (IHT) and look at your tax affairs. Your inaction could mean
a 40% tax bill payable on the value of your estate in excess of the 'nil'
rate band (£255,000 for 2003/04). So it is in this area that trusts
can come into their own, with many IHT planning packages built around them.
So what are the most common trusts?
Absolute Trusts, or Bare Trusts - The
beneficiaries are named in the trust deed or will. They have the right to
income and capital immediately and, as soon as they are 18, they have the
power to demand the contents of the trust from the trustees. The beneficiaries
and their shares cannot be changed.
Accumulation and Maintenance Trusts -
These are trusts for children. They are discretionary trusts with preferential
treatment for inheritance tax purposes. The donor doesn't have to specify
exactly what each child will receive. The trustees can dispense money as
they see fit for the education, maintenance or benefit of the children. Once
the children reach the age of 25, they must at least have the right to income
from the trust.
Discretionary Trusts - The trustee has
absolute discretion over who benefits from the trust from amongst a class
of beneficiaries specified by the settlor. However, a gift into such a trust
is immediately chargeable to inheritance tax at 20% if the gift takes the
settlor over his or her 'nil' rate band. The Inland Revenue can continue
to levy charges every 10 years.
Interest in Possession Trusts - Flexible
Power of Appointment. The trustees have discretion over who benefits from
the trust, within classes of beneficiary selected by the settlor at the outset.
But the income generated by anything in the trust is automatically given
to specified beneficiaries.
Life Interest Trusts - The specified
beneficiary is entitled to receive for life the income generated by the trusts'
investments, but the capital will pass (on death) to the next set of
beneficiaries - possibly children.
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SECURE IS YOUR PROTECTION? How secure is your protection portfolio?
- If you were to die prematurely, what impact would this have on your
family? Would they still be able to realise their plans and goals without
you being around? And how would you cope financially if you became too ill
to work due to an illness or disability? Take some time out and consider
Permanent Health Insurance (PHI) - For most
of us, our income funds everything. If it ceases, everything else stops,
so how do you ensure its continuation? The answer is PHI, also now known
as Income Protection Insurance. This is a form of protection that pays out
a regular amount if you are unable to work because of sickness, accident
or disability. PHI can replace a percentage of your income, less any state
benefits and cover provided by your employer. The payments are paid tax-free
and commence after a period that you specify. You can also decide whether,
in the event of a claim, you require the benefit payment to remain level
or to escalate annually. 1 in 14 of the work force have been off work for
six months or longer due to sickness, accidents and disability. (Source:
Department of Social Security 2002)
Critical Illness Protection - Critical
illness protection is an insurance that pays out on the diagnosis of certain
specified critical illnesses. The illnesses covered vary from policy to policy,
but they usually include six core conditions: cancer, heart attack/coronary
bypass surgery, kidney failure, major organ transplant, multiple sclerosis
and stroke. Generally within 14 days of a specified illness being diagnosed
(although this does vary depending on the particular provider), you would
receive a tax-free lump sum payment. The financial consequences of not having
critical illness protection could be significant. Calculate the size of your
outstanding mortgage, liabilities and other financial commitments. Would
you be in a position to repay them if you were diagnosed as suffering from
a critical illness, or do you have a shortfall?
STEP - THE BUILDING REGULATIONS - OBTAINING BUILDING CONTROL
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Life Assurance Protection - Its
not a particularly pleasant thought planning for your premature death. However,
if you have dependents, its essential. Life assurance is designed to
do one of two things: replace lost income for dependents or provide a capital
sum to repay liabilities. So what are some of your options? Term assurance
policies guarantee to cover you over a fixed term, specified at the outset.
Decreasing term assurance is usually used in connection with a repayment
mortgage. Family income cover pays out as a regular income, which is continued
through until the end of the term. Whole of life assurance guarantees to
pay out a lump sum on your death whenever this occurs. This type of life
assurance can also be used as a vehicle to plan for inheritance tax
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