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Planning ahead: The key to long-term financial stability

by Scott Brown | Mar 20, 2014
  • Insurance is the cornerstone of the financial planning process. It’s the mechanism by which we protect our most valuable asset: our future earning potential.
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    In this article, we’ll look at the different types of insurance offered by Sable Wealth, a key player in the UK insurance sector, and a firm favourite among foreign nationals based in the UK. 

    Personal insurance comes in various forms, from life cover and income protection to disability insurance and permanent health insurance. Unlike most insurance providers, we don’t offer a ‘one size fits all’ approach. Rather, we assess your personal financial situation, tailoring cost-effective cover to your circumstances.

    Critical illness insurance and total permanent disability insurance

    The primary benefit of life cover is the speed of payment to dependents. Life insurance gives your beneficiaries a tax-free lump sum if you die. 

    "Financial death"

    The financial impact of a ‘financial death’ (through accident or illness) can be catastrophic, rendering you unable to work for a long period of time. Critical illness insurance protects you against certain illnesses listed in your policy (for example, heart attacks and strokes are always covered).

    A critical illness policy pays out a lump sum as soon as you’re diagnosed. One of the main illnesses that it covers is permanent disability – a situation where you’re unable to care for yourself or return to work – a ‘financial death’ in insurance terms. Some providers will let you select only one critical illness, reducing the cost of your policy (this is called a total permanent disability policy).

    One of the main reasons for including critical illness/disability with PHI is that it is a lump sum to help with any immediate needs, like home improvements, etc. It is also a lump sum to potentially help supplement any PHI taken out, or top-up pension provision once PHI stops paying at a chosen age (which is often 65).

    Permanent health insurance

    Permanent health insurance (PHI) provides you with income if you are unable to work because of accident or illness. This income covers you for a set period of time (the “deferred period”) after you become disabled. The shorter the period, the higher the premium.

    Advantages of permanent health insurance:

    • The income you receive from permanent health insurance is paid tax-free continuously, i.e. from the end of the deferred period until you return to work or reach retirement age (whichever comes first). This income will continue as long as you can prove that you have a disability.
    • PHI is based on provable income, which takes into account your tax return. Any tax planning done with offshore income or limited companies can affect the level you are covered for. This ensures that you are not over-insuring when the benefit paid would be significantly less.
    • Because of the above, leaving the country will impact the PHI cover limits. Offshore cover may need to be put in place while you settle into a new country.
    • Your premiums will stay the same even after a claim is made. Most contracts will let you increase your level of cover to keep pace with changes in your salary, without the need for further medical evidence.
    • Your maximum income benefit is typically 50% to 60% of your earnings (in addition to state benefits).

    Some points to consider

    • You can choose whether your income is paid to you on a level basis or increase each year in payment.
    • Your income is exempt from income tax.
    • Your premiums are calculated on age and occupation.
    • They are also calculated according to the deferred period you choose and the type of income you need.
    • If you return to work on a part-time basis during a claim, the benefit will be scaled down to reflect the salary you receive.

    Protect your future earning potential

    One of your most valuable assets is your future earning potential. Without insurance cover, the illness or injury can leave your financial future seriously exposed. Permanent health insurance is a vital replacement income in times like these because it gives you financial support for you and your family when you need it most.

    Statistics show that one in five adults will be absent from work for more than three months as they near retirement. For this reason, there’s a reasonable chance of you making a permanent health insurance claim before you reach retirement age.

    The companies we recommend are firmly established market leaders, offering protection products and specialised, flexible policies.

    Placing policies in trust

    For most people, keeping your life insurance policy in trust for your beneficiaries is a crucial step, and one that we strongly recommend. Life insurance policies should be put into a trust if your estate exceeds the inheritance tax nil rate band (currently £325,000).

    The benefit of placing your insurance policy in a trust is that the lump sum is paid immediately to your family (or other beneficiaries) rather than into the deceased’s estate. The downside of the latter is that the pay-out is only accessible once any inheritance tax has been paid and the full probate proceed wrapped up. This can sometimes take longer than 12 months.

    We always recommend that life insurance policies are placed in trust.

    Gary Clayton was the Senior Adviser for our wealth division. We are committed to bringing a new era of financial services to foreign nationals based in the UK.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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    South Africa

    Cape Town

    Regent Square
    Doncaster Road
    Kenilworth 7708 +27 (0) 21 657 2120

    Durban

    25 Richefond Circle
    Ridgeside
    Umhlanga 4320 +27 (0) 31 536 8843

    United Kingdom

    London

    Castlewood House
    77/91 New Oxford Street
    WC1A 1DG +44 (0) 20 7759 7514

    Croydon

    5-7 Selsdon Road
    South Croydon
    CR2 6PU +44 (0) 20 7759 7581

    Australia

    Melbourne

    9 Yarra Street
    South Yarra
    VIC 3141 +613 (0) 8651 4500

    Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services License issued by ASIC to deal in foreign exchange (1st Contact Group - AFS License number 335 126).

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