In this episode, Tamsin speaks to her colleague and fellow Financial Planner, Charlene Love about financial protection. This conversation will help you to understand what the options are and how they will help you when the worst thing happens.
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And one of the team will be in touch.”
Charlene Love
With over 12 years of experience in the financial services profession, Charlene brings a wealth of knowledge and expertise to our team of financial planners at Smart Financial. She began her journey as a financial advisor and quickly established a reputation for offering exceptional financial guidance.
Charlene’s dedication to continuous improvement is evident through her impressive educational accomplishments. She holds a Level 7 Diploma in Wealth Management and is currently actively working towards her dream of becoming a Certified Financial Planner (CFP), further cementing her position as a trusted lifestyle financial planner. Beyond her career, Charlene is a devoted mother of four wonderful children. She understands the significance of financial planning not just professionally, but also as a family-oriented individual who values a secure financial future. Charlene finds serenity in long walks, achieves balance and tranquility through yoga, and fulfils her passion for travel by exploring new destinations.
Tamsin Caine
Tamsin is a Chartered Financial Planner with over 20 years experience. She works with couples and individuals who are at the end of a relationship and want agree how to divide their assets FAIRLY without a fight.
You can contact Tamsin at tamsin@smartdivorce.co.uk or arrange a free initial meeting using https://bit.ly/SmDiv15min. She is also part of the team running Facebook group Separation, Divorce and Dissolution UK
Tamsin Caine MSc., FPFS
Chartered Financial Planner
Smart Divorce Ltd
P.S. I am the co-author of “My Divorce Handbook – It’s What You Do Next That Counts”, written by divorce specialists and lawyers writing about their area of expertise to help walk you through the divorce process. You can buy it by scanning the QR code…
Transcript
(The transcript has been created by an AI, apologies for any mistakes)
Tamsin Caine 0:06
In today’s episode of the Smart Divorce podcast, I’m joined by my colleague Charlene Love. And we’re going to talk everything financial protection. So everything you’ve ever wanted to know about life insurance, critical illness and income protection, we’re going to hopefully answer all your questions there. Let’s jump right in. Hello, and welcome to another episode of the Smart Divorce podcast. And today a little bit different. I am joined by one of my lovely colleagues from Smart Financial Charlene, who’s been with us for a few months now. And we’re going to talk all about financial protection. So this is very much financial protection 101. So we’re going to give you a basic overview of what the different protections are that are available, and some of the important things to think about if you’ve taken up protection. So, Charlie, thank you for joining me today. Do you want to introduce yourself properly do a better job than I’ve just done?
Charlene Love 1:10
Thank you for having me Tamsin, and I’m looking forward to it. But yeah, so I’m Charlene. I’m the newest member of the team at smart financial, been with the company since September. But I’ve been in financial services for 12 years, and been under an advisory role since 2018. And I have the charts Wealth Management qualification. And I’m also currently studying towards gaining my CFP qualification as well. So, yeah, hopefully we’ll be able to help answer some of these questions.
Tamsin Caine 1:46
I’m sure we will, I’m sure we will. So financial protection. And now I know that lots of my clients and I’m sure it’s the same with you, when you first meet them, they’ll come in and they’ll go, Oh, I’ve got this payment going out to Aviva, or Legal & General, or whatever. And it won’t necessarily have the faintest idea what it for what the paying for what we took out originally. So we wanted to start with thinking about what the different types of insurance are, what the different types of financial protection are. And then why you might want to actually find out what that payment to Aviva is for your bank account. So I guess the starting point is life insurance? Because that’s, that’s the kind of base level, isn’t it? So, tell, what life insurance is first of all.
Charlene Love 2:44
Yeah, so life insurance will pay out on death, it will pay out a tax free lump sum, when when somebody has died. So you there are different types of life insurance, you could have a policy that runs for a number of years, or a policy that runs throughout your lifetime. So it’s called whole of life cover. That sounds quite confusing with life insurance and his whole life. But under that kind of policy, you will pay a premium each month, which is like you said the you know, this Aviva payment that’s coming out of your bank account, and you’ll pay a premium each month and that means that a lump sum will be paid to your beneficiaries on death. And and that will run for as long as you live. So, if you live to be 90 years old, that will that will still be in place and then whenever the death happens, the the lump sum will be paid out. And the other type of life insurance is term assurance. So that will that will run for a number of years. And the number of years can be chosen by the policyholder. So that could be where you have dependent children. And you would like the lump sum to be paid up until they reach independence, which
Tamsin Caine 4:20
95 then…
Charlene Love 4:22
Maybe so maybe so whatever definition of independence you have. So if you like your children’s be able to go to university regardless of what happens then you could have that in place to a certain age, for example, to 21. Or you might have term insurance in place where you’ve taken out a mortgage. For example, if you take out a mortgage and that runs for 25 years, you would only really need life cover for 25 years and then in that case, it’s the colour cover the mortgage liability If so you would, once the mortgage has been paid off, you don’t necessarily need that life insurance to pay out the difference. The main difference between the whole of life and the term insurance is the cost. So the whole of life would be more expensive, because that will be certain payout at some point in time. The term insurance is there for for a set period of time. And it might not necessarily be needed. I mean, the best case scenario is it never is needed. So you’ve paid the premiums you get to the end of term and it hasn’t paid out, that means you going on to live live a life beyond that. But yeah, he’s just there for that period of time to make sure that you have peace of mind for that for that duration.
Tamsin Caine 5:54
Yeah, absolutely. I think that’s the most important thing about financial protection. You know, we call it protection, it’s there for peace of mind, isn’t it there so that if something, it’s like any insurance if you want it there, so if something goes wrong, then the people you care about your family and so on are financially protected?
Charlene Love 6:14
Yeah, definitely.
Tamsin Caine 6:16
Just a thought about, about single people, because if you’ve got, I’m gonna use the example of having a mortgage. Because if I’ve got a mortgage, if I’m living in the house with my children, if I’m, if I’m single parent, for example, then having that mortgage protection in place, means that the mortgage will be paid off, and the children will be able to benefit from the lump sum, albeit they’ve not like to live in the house on their own if they’re under 18. But they there will be a lump sum available for them for their future. If I’m the single person with no dependents, what have got a mortgage? This is just very personal thing. But what’s your thoughts about about life insurance in those in that example?
Charlene Love 7:13
Well, it depends what your your preferences are. I mean, if if you’re a single person, you don’t have any dependents, I mean, essentially, what would happen, you’ve got that mortgage in place, something happens to you, the mortgage won’t be paid, you know, the payments will be made after a month or so. And the mortgage company will be informed with your death at some point. But if if you don’t continue to pay that debt, unfortunately, that the mortgage lender wouldn’t be able to take the property. So if if you had planned to leave your property in your will to somebody else, and then the mortgage company needs to be paid the outstanding loan amount in order for that to remain your, your asset.
Tamsin Caine 8:04
So I guess the option is, is the money gonna be available to pay the mortgage until the house can be sold? And then the debt paid off and whatever’s left? Or if you really want how the left to do with sibling or something, for example, then you do need life insurance, even though it’s not necessarily going to benefit you directly. Because she’ll be dead. Yeah, yeah. Okay, cool. So one other question on life insurance put you on the spot that and the lump sum that that gets paid out on your debt that go into your date? And if it would normally, is there anything that you can do to stop that happening?
Charlene Love 8:53
Yeah, so when, when the life insurance company pays out, it would be paid to the rest of your estates, we would form a part of your overall assets. So a couple of things to think about with that. Once you add that payment to the rest of your assets, is it possible that your estate would then fall under inheritance tax under the the net of inheritance tax if you like? And, if so, it might be worth looking at the option that I’ll speak about next. And the other thing is when it pays out, it can take quite some time. So when when it pays out, it’s paid to your estate. So your assets would be distributed in the same way as if you had cash in the bank or investment, wealth say non pension assets at that point. So they will be distributed to your beneficiaries. Now, if there’s no willing base, that, really, I mean, we could also always say you should have a will in place. But some people might think, right, I have a life insurance policy that will pay out to my beneficiaries that that’s it, I’ve done a demo of it, which is great, you know, taking the step to get the life insurance in place is a great step. But if you don’t have a will in place, chances are your assets will be distributed in a way that you hadn’t planned. So that that’s a wider conversation. Even if even if you do have a will in place, the process of going through probate can take quite some time. And I’m sure anybody who’s lost anybody will know that, that that, you know, it’s a really lengthy process. And so you weren’t your beneficiaries were actually received those monies, Intel, Intel that processes has completed. So one thing that you could do, which would help with the inheritance tax issue, and also, if you would want your beneficiaries to receive the funds much quicker, is you can set up the policy so that the proceeds are paid into a trust, again, the trust, I think it’s a bit bigger conversation, they can be quite complex. But in as part of this conversation, it can be quite easy to get those provisions in place. So the life insurance company may actually, well, probably well, and give you the option to do it at the point of making the poll, taking out the policy, so that when the lump sum is paid out, it’s paid into trust, which means essentially, it’s ring fence from the rest of your assets, so that insurance payment won’t form part of your state won’t increase any inheritance tax issues. And also, once the death certificate has been received, it will be quite quick after that, and that your beneficiaries will be able to access the funds. So it just makes it, it makes it a bit more streamlined. And when your dependents are really in need of that money, they are actually able to access it. Because it’s it’s one thing to have in the life insurance policy setup, which is a great first step. But if if it’s going to take a really, really long time for anybody to see any of the money, then it’s not really served the purpose that you needed it to, it’s there to give them peace of mind and allow them to concentrate on the awful situation that they’re in without also having money, money worries as well.
Tamsin Caine 12:50
That’s absolutely right, as good point that as well. Because if you have taken out life insurance for a mortgage, for example, and the your next of kin don’t necessarily have money available to pay your mortgage, even on a monthly basis, you know that having that payment in trust, means you get it almost straight away, and it gets paid out. And you can make mortgage payments, or you can get rid of mortgage entirely and and yeah, that’s job done. And it does take off some of that emotional burden that you’ve got, like you say it’s going to be a stressful time, but at least not having to worry about money is going to be a massive benefit, isn’t it?
Charlene Love 13:34
Yeah. Yeah. It’s it’s massive and and, you know, if I think about my family situation, and I’ve got kids at home, house to run a job. So if the worst happened to my partner, it the thought of sort of spinning all those plates and carrying out, you know, looking after the children trying to work work, but then also, you know, not being able to afford to pay the bills. It’s just an added level of stress that just doesn’t bear thinking about something that can be mitigated. You know, if you plan in advance for it.
Tamsin Caine 14:16
Absolutely. Okay, that financial protection that doesn’t benefit you at all, because you’ll be that biometric protection that you might want to take out that does benefit you when you’re still alive. So let’s kick off with critical illness cover. Tell us about critical illness cover.
Charlene Love 14:42
So, critical illness cover sometimes can be an add on to life insurance, but it can also be standalone. Critical Illness cover will pay out again a tax free lump sum on the diagnosis Have a an illness that that’s life shortening. So if you, if you’ve been diagnosed with something that says that you might not live for 12 months, then you will receive a lump sum. And the critical illness cover is more expensive than what you’ve covered. Because actually, statistically speaking, you’re probably more likely to be diagnosed with with one of those illnesses such as cancer, if you’ve had a stroke, if you’ve had a heart attack, and you don’t, if you live beyond 12 months, or whatever the term is, under your insurance company, you don’t have to repay any of that. But it’s on that diagnosis, and you said it will, will benefit you. So if if something like that happens, and you get the payment, you might need to use it on something like making adaptions at home, if it’s something you know, if you if you’ve become disabled, because of something that’s happened, or, you know, helping with the cost of moving home somewhere that’s a bit more accessible, or the locations a bit better. Or it might be that, you know, your life’s been shortened and you want to do some of the things that you’d always wanted to do. So yeah, it will benefit. It will benefit the policyholder as well as the beneficiaries, I guess. So. Yeah, peace of mind for you, as well.
Tamsin Caine 16:34
I had a client who had a critical illness payout, they had quite a late stage cancer diagnosis, but they did actually survive. And they decided to use their critical illness cover gone around the world cruise, because they didn’t think they were gonna last very long. So they went in, picked up some things that they wanted to do on their bucket list. And that’s how they used it as their payment, you know, is for some people, it’s just delivering, and just day to day life. And for some people it is like, like you stayed on those one off payments. Even a new car, if you haven’t got suitable transport to trade, she’s hospital and things like that. So yeah, it is, it is valuable. A valuable protection, if you can afford it, as you say, you don’t tend to be more expensive than then life insurance. And you mentioned some of the things that critical illness covers. So it’s not just if I get a diagnosis of, of I’m not going to fly for more than 12 months, then critical illness will definitely pay hours that have to be a certain condition.
Charlene Love 17:53
Yeah, well, that would be specified under the policy that you take out. So I guess, the more far reaching the definition, the more expensive the policy would be. But I think most of them would cover sort of the main the ones that I mentioned earlier, a life threatening cancer, because these might be a milder form of cancer. I mean, God forbid, you know, none of us want that to happen to us. But there’s some bombs that might not be seen as life threatening in that way. And so yeah, there will be definitions. So it’s important if you are taking out critical illness cover to have a look and understand what they are. And if you have, sorry, just going off. And if you have something like that, that runs in your family, then you would have to tell the life insurance company as well, because it might be that you’re not covered for that or that they might have conditions applied to it. So I mean, doesn’t mean that you can’t get the cover, but it’s just something that would have to be taken into consideration.
Tamsin Caine 19:01
And that’s really important, isn’t it? Because if you’re going to pay for financial protection, you want to make sure that it pays out. And fast enough, if you like, to any conditions that you’ve got any investigations that you have a listing that runs in your families rarely often says that?
Charlene Love 19:23
Yeah, yeah, absolutely. Because you might have the best of intentions, you might be paying, paying the premiums for for many, many years. And then when it comes to making a claim, it might be that that the insurance company could just say no, you won’t cover them. And that’s just to sort of caveat that. And I think there is a perception that insurance companies are always determined not to pay out. And I don’t I don’t actually think that is the case. I think that you know, they really do want to help but, you know, help yourself by being honest with that, because, as I say, it’s likely you can still get the coverage, just that there might be conditions with it, and it will get found out for it. So for example, if somebody smokes, and they say they don’t smoke, and then you know, it’s, there are ways of finding out whether that’s true or not. So it’s just about being being honest with it.
Tamsin Caine 20:25
Yeah, absolutely might as well pay a little bit more to begin with, and make sure that the company pays out. If you ever need it, then I’m paying a lot less. But actually, you’ll be paying for content that’s never actually going to pay. I think you’re absolutely right. I think insurance companies, if they if they don’t, if they want to avoid paying claims, that gives them a bad reputation in the marketplace. So then they don’t set up not pay claims, I’ve had quite a number of instances over my career where where people have have had successful insurance claims, one of my best friends is receiving income protection for breast cancer diagnosis. One of my clients has been receiving income protection for the last few years, paid up until retirement for a liver transplant. I wish that I had caught on this claim from from previously, they do tend to pay out, it’s just you’ve got to make sure that you give the correct and accurate information. And even if you remember, something later on that you’ve forgotten to mention during the application process, if you can possibly tell the insurance company before you put the policy in force, even if it ends up costing you a bit more it’s it really is well worth well worth doing and making sure that that policy is going to pay if you need it, and when you need it. Okay, so one more what type of financial protection that can come in place for personal protection. So really concentrate on personal protection, there is also business protection that’s available, we’re not going to focus on that today. That might be a topic for another day, but But for today, we’re focusing on personal protection. So the last remaining type is income protection. And I think randomly This is my favourite thought protected, because I think this is the most useful one. And it’s probably the one that the least people have.
Charlene Love 22:35
Yeah, yeah. So I think there’s the perception isn’t there that you only need income protection if you’re self employed? Or if you if your working position is a bit unstable, but that’s not actually true, it can be useful for everybody. And so what I would say with income protection, some people think, Oh, well, I think, work, you know, if something happens to me, I think work will pay and salary just to stay income protections for if you can’t work due to some sort of disability or illness. And it can be it doesn’t have to be a critical illness like we’ve just spoken about. It can be that, you know, you work in a physical job and you’ve broken your leg and you can’t call it could be under some policies that you’re struggling with your mental health and you’re not, you’re not able to go out for whatever reason, or I think you just said your your friend have breast cancer, you know, it can be all these, the it’s more far reaching in terms of diagnosis. But if you can’t work due to illness or incapacity, then England protection would pay an income, as opposed to the lump sum that you would receive on the life insurance and the critical illness, it will pay an income every month. So you can have, you can choose the amount of cover, but it would usually be a percentage of your post tax earnings. So it wouldn’t be the same amount. So if you earn, I don’t know, 25,000 pounds a year before tax, it wouldn’t pay 25,000 per year, it might pay 60% of that if if something happens to you, and it would pay after a period of time. So I started talking about something else earlier. When people are employed. They think that if they can’t work, then they might continue to be paid for a period of time they might receive full pay them out receive half tech, but most people aren’t actually Sure. You know, you and I would have had conversations with clients and we’ll say you know what happens in the case that you can’t work and they kind of I’m Oh, well, I do think I will be paid. But I’m not sure how long nobody, nobody really knows. So I would always recommend finding, finding out, you know, and getting that for certain. Because it’s good to know for your peace of mind, or it might actually scare you into thinking, Oh, actually, you know, maybe I do need income protection insurance. So, as I said, after a period of time, you will start to receive any income from the insurance company. And that will pay for as long as you need it to style. If you’ve taken out any protection insurance that will pay until you’re 60 years old, and you can’t work until you’re 60 years old, it will continue to pay or until you are able to go back to work. Or, until it until that in that in the sort of worst case scenario. But it again, I think insurance companies to get this bad reputation for it, it can be quite generous, because it gives you time to recover. You’re not be not being told Oh, it’ll only pay for 12 months. Kids for as long as you need it’s pay. And some companies might actually, I guess in their benefit as well, will help find ways to get you back into work, which I think is really good. Because you do need that help. If you’re unable to work, having the financial help is is fantastic. And it takes away a massive amount of stress, it means that your bills can still be paid, you don’t have to worry about you know, not being able to put food on the table or enjoy other activities. But it’s also good to get back to work when the time’s right. So if you’ve got that support to get back so that it might be that the sale will pay, pay a bit less as you pay your way back into work, which I think is great. But whichever way it just gives a bit of a bit of breathing space. And I guess, where people have this misconception that you only need life insurance when you’re old, which is incorrect. The thing is when you’re young and you’ve got a young family, it’s likely that you’ve got big liabilities, like the mortgage, you’ve not got much by the way of assets. And you know, you’ve got a young family to support which you might have childcare costs, you might, you know, you might need the two incomes to continue to keep the house running. So actually, younger people do need Well, all of these covers, but I would say income protection, insurance is really important as well just to be able to be able to keep living if if you’re not able to work. And that’s the same, I guess, if you have whether you have dependents or not. This one’s really important because it means you get to keep keep the lights on over your head, eat, you know, even if you’ve not got children, even if you’ve not got a spouse, it’s health issues survive and live your life.
Tamsin Caine 28:24
Yeah, absolutely. It’s you know, I think even almost even more so if, if it’s just you, if you’re a single person, whether you’ve got children or whether you haven’t got children, if you’ve got if you want to live and not have to go home to your parents, if that’s even a possibility. You need to have income protection so that if something happens to you, if you’re ill, Ill that you can’t work, you need to make sure that there’s a way that you can keep, as you said, keep the lights on keep the heat in that and then keep food on the table. And I’ve certainly seen the benefits of that. Hello, my friend who’s got breast cancer she she had a limited term income protection policy. So it’s been five years. But even that, even though it was five years, it’s still it’s still something it’s still meant that she can take five years without having to worry about getting back to work without having the stress of it. No, she’s that chemotherapy said radiotherapy she’s been through the mill her body’s been through the mill with everything that she spent her she’d had financial stress as well. Then I don’t think she’d have come through it as well as she has. So yeah, thinking protection. For me income protection is the most important one of them all. And I personally think it tends to be more affordable than critical illness covered because it’s not paying out that lump sum it is an income benefit. It does seem to be a little bit cheaper. It’s not as deep as life insurance, but it is certainly from my experience. Not as expensive. That’s critical cover
Charlene Love 30:02
Yeah. And like you said, it’s not the lump sum and the likelihood is within a period of time you will return to work. And then we know they, they they stopped paying. But yeah, just I think it’s, it’s massively important. Yes. Like you said, if whichever illness you might have, or which, you know, what, for whatever reason, you can’t get back to work. It’s enough of as a challenge as it is being able to just make those steps and get get back to your normal routine, without also having the stress of having no money, and probably will delay and, you know, delay any recovery. So, yeah,
Tamsin Caine 30:55
No, you’re absolutely right. Though, with all those things, if you’ve got payments on your bank statement from the life insurance company, and you have no idea what it is or what it’s for, just please call the company up and ask if you’ve got a policy with them and ask them to send you detail. Life insurance should all criticals proper or income protection, whatever financial protection you’ve got should be reviewed on a regular basis, as your life changes, because when you take it out, you might be in one situation. You just need to keep it under regular review, don’t you?
Charlene Love 31:29
Yeah, definitely. Yeah, life, you know, things things happen. And yeah, as your situation changes, they, you might have taken it out with the best intentions, but actually, you know, for your personal circumstances, now, it’s no longer the best option. But, you know, it’s good to have it in place, good to have something in place. And, you know, for some people it might be to take out a new policy, or it costs too much or, but, you know, it’s worth worth looking at how, you know, if the cost really is an issue, you might be able to prioritise what you know, what really concerns you and amend the cover so that the cost is reduced. So before with the income protection insurance, if, if you can live with your current savings, or if your employer will pay you a period of time, and you can delay the payments for six months after that, but whatever it is, has happened. It might be a bit cheaper than if it started paying out after three months or you know, if you can prolong it a bit more than that, but actually having something in place or even if it’s a smaller percentage of your income, even if it’s a small amount, but it can just cover your essential bills and just you know, take that stress off something is better than nothing.
Tamsin Caine 32:54
Absolutely, I totally agree with you there. So review cover the mighty options if you do need to reduce the amount just make sure whatever you’ve got is suitable and appropriate for you in your circumstances. And if you’ve had a change of circumstances such as getting divorced, make sure you review that cover and make sure that whoever on the truck truck whoever the beneficiaries are still the right people make sure that the income protection is paying out to the right bank accounts make sure that whoever’s covered are the right people. And yeah, that’s brilliant that Charlene anything else to add before we finish for today?
Charlene Love 33:39
Well I was I was thinking earlier you know when we you know goes about saving when you buy a car I take out insurance when we’re kids you have to you know it’s compulsory but when you buy a phone and take out insurance when we buy a pet one of the first thing is you do take out insurance so you know it might be that your puppy actually has more comprehensive insurance that you have. So just think about you know, it is important and people have a bit of pushback for whichever reason you know for some people they don’t want to think about the worst case scenario some people might think the kind of balled it but you know, is important and barbaric burying your head in the sand. That’s it’s not really the right solution. So just if you take action, review it, get it done. And then you don’t have to think about it peace of mind is something ticked off the list and something that will just just give you peace of mind and know that you’ve got everything covered.
Tamsin Caine 34:43
Perfect, brilliant note to end on. I love that you’ll enjoy your pet but probably not yourself. Charlene thank you so much for joining me today. You’ve been fantastic. Thank you!
Tamsin Caine 35:00
I hope you enjoyed the episode of the Smart Divorce podcast. If you would like to get in touch please have a look in the show notes for our details or go onto the website www.smartdivorce.co.uk. Also if you are listening on Apple podcasts or on Spotify and you wouldn’t mind leaving us a lovely five star review. That would be fantastic. I know that lots of our listeners are finding this is incredibly helpful in their journey through separation divorce and dissolving a civil partnership. Also, if you would like some further support, we do have Facebook group now. It’s called ‘Separation divorce and dissolution UK.’ Please do go on to Facebook, search up the group and we’d be delighted to have you join us. The one thing I would say is do please answer their membership questions. Okay, have a great day and take care!