Simon Wigglesworth: Safeguard your family finances

Cover your liabilities. Mortgages are getting bigger as property prices continue to rise and for many of us the monthly payment is our biggest outgoing.

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Know the extent of your mortgage and other loans, exactly how long they last and whether they are on a repayment or interest only basis. You will then be able to tailor a suitable protection product to match these liabilities and make sure they are fully paid off if you were to die or suffer a critical illness.

Protect your family. For most people, the standard of living they expect their family to have over the years depends on the day-to-day earnings of one or both partners. Should these earnings be cut short, how much will your family need to ensure they continue that standard of living and still meet their long term objectives? This could be as simple as making sure the bills are covered in your home for the next few years or it could include the cost of further education for children.

Lump sum or regular? Most products will provide your benefits as either a single lump sum or as a regular income for a fixed term. When protecting things like mortgages, it makes sense to pay off the full liability as a lump sum as soon as possible. When protecting your family and replacing lost income, however, it could be more cost effective to provide benefits as income and make sure it is increasing with inflation. This type of benefit is called Family Income Benefit and is usually cheaper than protecting a lump sum to provide equivalent income. You still have peace of mind however, that your family will receive a fixed income for as long as you have set this for.

Deal with “death tax”. A simple way of ensuring you don’t leave a big inheritance tax (IHT) bill behind when you die is to take out a life assurance policy to cover the tax. This type of policy would usually be a ‘whole of life’ policy and it should be written in trust to ensure the proceeds do not form part of your estate and simply add to the tax problem. As part of later life planning, some people choose to make sizeable gifts to children and grandchildren to reduce their IHT liability. These gifts are classed as potentially exempt transfers and will still be liable to IHT for seven years on a tapered basis. 
• Simon Wigglesworth is a chartered financial planner at Cornerstone Asset Management