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Financial protection can provide essential security when you need it most. But it can be overwhelming to receive a lump sum and understand how you should use it. Seeking financial advice after you’ve received a payout could be valuable.

There are several different types of financial protection that would pay out under different circumstances. Appropriate protection can give you peace of mind that even if the worst should happen, you won’t immediately have to worry about how you’ll cope financially.

Some types of protection will provide a regular income to ensure you can meet essential outgoings. However, two common types of financial protection often pay out a lump sum instead. These are critical illness cover and life insurance.

Critical illness cover would pay out if you were diagnosed with an illness named within the policy. Usually, these conditions are serious and could be lifelong. So, a lump sum may be used to pay off your mortgage, provide an income while you undergo treatment, adapt your home, or simply give you some time to come to terms with the illness.

Life insurance would pay a lump sum to a beneficiary, often a partner, if the policyholder passed away during the term. It can provide a valuable safety net if your family relies on a person’s income. Typically, the cover life insurance provides is linked to significant expenses, such as your mortgage, or milestones, like your children reaching adulthood.

The payout from a life insurance policy can ensure your family is able to maintain their lifestyle and don’t have to worry about finances while they’re grieving.

While these policies can be invaluable during times of need, would you feel confident managing the payout?

The average life insurance payout was more than £80,000 in 2021

You can choose the level of cover when you take out financial protection to suit your and your family’s needs.

According to statistics from the Association of British Insurers (ABI), in 2021:

  • 91.3% of critical illness claims were approved and the average amount received was £67,951.
  • 97.3% of life insurance claims were upheld, with bereaved families receiving £80,485 on average.

Receiving a lump sum when you’re dealing with an illness or loss in the family can create an essential financial safety net. But it’s also common to feel overwhelmed at a time when your focus is likely to be elsewhere or you may not want to make big decisions.

However, the way you use the money could affect the financial security it provides and there’s no one-size-fits-all approach. For some families, paying off the mortgage means their regular income could cover day-to-day outgoings. For others, if they’ve lost their main source of income, using the lump sum to replace it could be more important.

Tailored financial advice could help you understand how to use the money to relieve immediate financial pressures. And, when you’re ready, advice could lead to a plan that addresses your key priorities or concerns.

An effective plan could give you confidence in your financial future and means you can focus on what’s important, such as spending time with your family.

Financial advice could provide support to your loved ones too

If your family would receive a lump sum if you passed away, financial advice could help them decide how to use it too.

A financial plan could mean that a life insurance payout is used to ensure your children can continue to attend their current school, maintain their lifestyle, or even have a lump sum to support milestones in adulthood.

Talking to your loved ones about what they could receive can be difficult, but it could mean they’re in a better position financially. Making them part of your financial plan and involving them in the process could be beneficial and lead to them seeking financial advice you trust if they need to.

If you’re worried about how they’d manage a lump sum, there are different types of financial protection that could be valuable. Family income benefit would pay a regular income to your family for a defined period if you passed away, and this could be easier for them to manage financially.

Please contact us to discuss financial protection

If you want to talk about how you could create long-term security, including taking out financial protection, please get in touch. There may be other steps you could take to improve your ability to weather financial and life shocks too.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that life insurance plans typically have no cash-in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 15/02/2023.