by Nick Plumb – (Plumb Financial Services)

Most people take out insurance for their home contents and their buildings and we all have motor insurance to protect our cars.  Some people even have insurance for their pets.  But more than 60% of the people I meet as a Financial Adviser do not have enough life insurance in place to protect their family if they die.

Unfortunately, life insurance is one of those products that the majority of people don’t have just when it is needed most.  And if you don’t have it when you need it – it’s already too late to do anything about it.

Taking out life insurance is something that many people are quite unsure about, typically prompting questions like;  “How much cover do I need?”  “How long do I need it for?” and “How much will it cost?”

The following information is intended to answer some of the questions you may have about life insurance, and will hopefully persuade you to contact a financial adviser to review your own insurance arrangements sooner rather than later.

Do I need life insurance?

If you have an outstanding mortgage or if you have a dependent partner or children, you need life insurance.  It’s that simple.

If you bring an income into the household, or if you care for children who are financially dependent upon you, then there will be a financial cost to your family if you die.  If the main ‘bread winner’ dies, their salary will have to be replaced.  Likewise, if the partner who cares for your children dies, their duties will have to be taken up by someone who will need to be paid for their services, so that the surviving partner can continue to work and earn. 

If you have an outstanding mortgage, having insurance that pays off the mortgage will not only ensure that your family will have a roof over their heads, but will also save your spouse or partner the cost of monthly mortgage repayments – usually one of the biggest financial commitments each month.

How much will it cost?

The cost of life insurance depends on several factors:  A primary consideration will be how much cover you need, and how long you want the cover to last for.  Also, your age, sex, occupation, health condition and whether you smoke or not are all taken into account when calculating how much your insurance will cost.  This is called the ‘underwriting’ process.

The important thing to remember is that it need not cost the earth and getting a quote costs nothing.

How much life cover do I need?

If you’re the main breadwinner in a family, you will obviously want enough cover to enable your family to be able to maintain their lifestyle so that they do not encounter any financial hardship.  As a guide, the figure should be enough to replace around 80% of your net earnings (your spouse will be entitled to some state benefits) or at least £20,000 for professional child care each year.

How long do I need it for?

I would normally recommend family protection should last until the youngest child is aged 21 years, which ensures that your children will have the opportunity to go through university and (in theory) will reach financial independence after their education is completed. For a mortgage, you should protect the whole of the outstanding term of the loan.

Where do I buy it from?

To ensure you get the very best deal, you should always take independent financial advice when buying life insurance.  Never trust a bank or building society to give you the best deal on your life insurance or mortgage protection, unless their adviser is independent and has searched the entire marketplace for you.  Banks and building societies are usually tied to one company or a small group of companies, and that means that they rarely offer the best premium rates for life insurance. 

Take our £10 Insurance Challenge and save yourself some cash!

If you have a life insurance policy that was arranged by a bank or building society within the last five years, post or e-mail a copy of your existing policy document (showing the sum assured, policy term, and premium, and your date of birth and smoking status), and we will call you back with a free no-obligation quote.  We guarantee to find you a policy that offers the same or better benefits for a lower monthly cost.  If we can’t beat your existing policy, we will send you a crisp new ten pound note in the post!  

Nick Plumb is an Independent Financial Adviser and Practice Principal at Plumb Financial Services of Baylham Business Centre, Lower Street, Baylham, Suffolk, IP6 8JP – Tel 01473 830301.  www.plumbfs.co.uk.

By Steve Hopkins FCII, Managing Director - Firth & Scott Financial Services Ltd

A few years ago the Government changed the way that inheritance tax thresholds were calculated for married couples and registered civil partners, effectively increasing the threshold on their estate when the second partner dies, to as much as £650,000 in 2012-13.

Protecting your estate from the affect of inheritance tax is an important part of any financial planning programme, so I think it’s always a worthwhile exercise reminding ourselves exactly how this works.

Below is an example of how the unused inheritance tax threshold (or ‘nil rate band’) of a late spouse or civil partner can be transferred to a second spouse or civil partner and utilised when they die.

Transferring the whole of an unused threshold

Mark dies in May 2007.  He leaves an estate worth £400,000 to his wife Sharon.  She dies in August 2008, leaving £600,000.  When Mark died the Inheritance Tax threshold was £300,000.  When Sharon died, the threshold had gone up to £312,000, so her estate was over the threshold.

None of Mark’s threshold was used when he died because he left his entire estate to his wife and he hadn’t made any lifetime gifts.  So Sharon’s personal representatives can transfer 100% of Mark’s threshold to increase her threshold.  They don’t transfer £300,000 – the threshold when Mark died – but the percentage of the nil rate band he didn’t use, i.e. 100%.  They then apply this percentage to the threshold at the time Sharon died.

So Sharon’s threshold increses to £624,000, twice the 2008-09 threshold of £312,000, using 100% of her nil rate band and 100% of Mark’s.  This means there’s no Inheritance Tax due on her estate*.

So to summarise remember that if none of the threshold has been used then 100% can be used by the surviving spouse/civil partner.  Using the current levels this would amount to £650,000.

However, what would happen if a legacy was made on the first death to a person who wasn’t exempt (as far as inheritance tax is concerned)?*

Jamila dies in May 2007, leaving an estate worth £300,000.  She leaves £40,000 to each of her children and the rest of her estate (£180,000) to her husband Kamil.  Whem Jamila died the Inheritance Tax threshold was £300,000.

Kamil dies in September 2009, leaving an estate worth £500,000 which he leaves equally to his three children.  When Kamil died the threshold was £325,000.

The amount of Jamila’s threshold that can be transferred to Kamil is:

• Threshold at the time of the first death (Jamila) = £300,000
• Minus the legacies to her children who aren’t exempt = £120,000
• Leaving a remaining threshold of £180,000 

The percentage by which to increase the threshold on the second death (Kamil) is:

•  The threshold remaining from Jamila’s death (£180,000)
• Divided by the threshold at the time of Jamila’s death (£300,000)
  Multiplied by 100 (£180,000 divided by £300,000 x 100 = 60%)
  

So the threshold available to transfer to Kamil’s estate is £325,000 x 0.6 (60%) = £195,000.  This is added to Kamil’s own threshold of £325,000, increasing his threshold to £520,000.  Because Kamil’s estate is lower than this – there’s no Inheritance Tax to pay.*

Whatever your financial planning needs let Firth & Scott, one of the limited number of chartered financial planning companies in the UK, help you make the right financial planning decisions going forwards. 

Why not book an appointment?

Call Nottingham 0115 8400 333 or complete our online enquiry form and take advantage of an independent review of your current financial situation.

Steve Hopkins FCII

Managing Director

Firth & Scott Financial Services Ltd

* Source

HMRC.gov.uk

September 27th 2012,
by Nick Plumb - (Plumb Financial Services)

Many people are asking me whether it is a good idea to move money out of cash and into longer-term investments.  The UK stock market has certainly recovered a lot of the ground previously lost to the ‘recession’ years of 2008 and 2009. However, there is still a fair degree of uncertainty about Europe and other world economies.  So, would now be a good time to put some spare cash into longer-term investments?

In reality, the best time to have invested would have been four years ago at the depth of the recession when the markets were on the floor.  However, there was little investor confidence at the time, and it is understandable why so many people waited to see what the stock markets would do.  The general opinion of most analysts is that the FTSE will eventually climb back up to above 6500 points again, or even higher, which would certainly benefit anyone investing now.

My ten basic investment rules are designed to help guide you in the right direction when making non-cash investments.

Rule One
Don’t expect miracles. You may hear tales of investors who have turned £1,000 into £10,000 in a couple of years by picking the right stocks and shares but the odds against such a phenomenal return are about as long as winning the jackpot on the National Lottery.

Rule Two
Don’t be tempted to take more risk than you are comfortable with. Promises of high potential rewards will generally mean a greater potential risk of financial loss too. Unless you specifically want a high risk investment, a good financial adviser is likely to suggest an investment with a broad spread of assets that should outperform a bank or building society savings account over the longer term, but which will not expose you to more volatility than you are happy with.

Rule Three
Don’t look for a ‘quick buck’. All non-cash investments should be viewed as a medium to long-term commitment (to be held for at least five years or longer). There are no ‘get rich quick’ investments and a steady sensible ‘tortoise’ usually beats a volatile and risky ‘hare’ in the investment world.

Rule Four
Don’t pin all your hopes on investments alone. If you have a young family, you should have life insurance in place and some form of cover for ill health, so that your family would be well provided for financially if you died or suffered a serious illness. You should also have made some pension provision to ensure that your retirement years will be comfortable before making other long term investments.

Rule Five
Know exactly what you want your money to do for you. You can invest to produce additional income or if you don’t need extra income right now, your objective will probably be for capital growth. Having clear investment goals and objectives will clarify the most appropriate investment strategy for you.

Rule Six
Make sure you use the most tax efficient investments first. You should generally always fully fund ISAs in each tax year before considering investments in Unit Trusts, Investment Trusts or Life Investment Bonds.  Your tax position and that of your spouse will also affect what kind of investment is recommended by your adviser. 

Rule Seven
Avoid putting all your eggs in the same basket. Look at investments that offer a wide choice of investment funds from different fund managers. Spreading your money across a diverse range of assets and funds will reduce the risk and volatility of your portfolio.  For example, investing in ten moderately adventurous funds with a wide spread of asset classes can actually be a lower risk strategy than investing all your money in a single medium risk fund where your money is all held in one asset class. 

Rule Eight
Never deal with anyone who ‘cold calls’ you.  Professional Financial Advisers just don’t do that. Cold calling is the usual tactic of the boiler room scammers and fraudsters.  Be particularly wary of people who contact you from overseas offering “sure-fire riches”. They are outside the control of the Financial Services and Markets Act (which regulates advisers in the UK) and all of your money could be at risk with no chance of getting it back.

Rule Nine
Never lock money away in a long-term plan if you may need it tomorrow.  Keep plenty of cash available in instant access accounts for emergencies and short-term needs.

Rule Ten
Review everything on a regular basis with your Adviser, to make sure your investments are performing as well as they should be.

Remember, whatever your investment objectives, there is no substitute for good old fashioned face-to-face advice from a qualified Financial Adviser.

Nick Plumb is an Independent Financial Adviser and Practice Principal at Plumb Financial Services. Answers to any questions within articles within the Library section are provided only as a general guide and do not constitute personal financial advice. Any individuals who require advice should contact us to arrange a complimentary initial consultation to discuss their own position.

by Nick Plumb – (Plumb Financial Services)

One of the most common enquiries we receive at Plumb Financial Services comes from investors who are worried about the performance of their With-Profits investments or pensions.  Once upon a time a With-Profits investment bond or a With-Profits pension was seen as a low risk home for your money that enabled you to benefit from growth in the stock market whilst smoothing out the ups and downs.

However, that is no longer the case and many UK With-Profits funds have performed very badly in recent years. 

Many insurance and pension companies slashed their annual bonus rates a few years ago when the markets failed to grow as well as they had previously. This rate cut was compounded by the recession of 2008. Unfortunately, despite a three-year period of growth in the stock market between mid 2008 and mid 2011, few companies have yet to increase their With-Profits bonus rates back up to anywhere near what they were before the recession.  In some cases, annual bonus rates have been set at zero for several years now. Terminal bonus rates (typically added to the accumulated fund at maturity) have also been slashed.

As a result of the poor bonus rates being paid, many investors looked to surrender and move their cash into other investments with better returns. To stop a run on cash exiting the funds, many pension and insurance companies applied Market Value Adjustments (MVAs), which are effectively an encashment penalty charged against investor’s funds. In some cases, these MVAs have been as high as 25% of the fund value, effectively trapping policyholders in an investment or pension fund earning zero bonuses.

Moving your money out of these funds and incurring such large reductions in the fund value would at first sight seem to be a reckless proposition.  However, in some cases by cutting your losses and getting out of these With-Profits investments and pensions sooner rather than later you could actually be better off in the longer-term than if you sit tight and hope for the best.

For people with under-performing With-Profits Bonds, there is a somewhat limited window of opportunity.  Until January 2013 it is possible to invest into an investment bond with another company that offers enhanced allocation rates for larger investments.  That means the new investment company will add money to your initial investment, which could replace what your existing investment company deduct as an MVA penalty. 

If your financial adviser is also willing to work for a fee, then some or all of the commission that would ordinarily be payable to him or her by the investment company could be given up and rebated into the plan to further enhance the allocation rate of the new investment.  That means you could get back the MVA penalty deducted on exit from the under-performing With-Profits fund.

This will only work until the end of this year, as after 31^st December, 2012 investments that generate commission will disappear and all Independent Financial Advisers will have to work on a fee charging basis.  However, many IFAs (like ourselves) are already working on a fee charging basis, so whilst these commission paying investments are still around, they could offer a way out of the With-Profits nightmare.

If you have been saving for retirement into a traditional With Profits Personal Pension plan, it may also be worth considering a transfer of your fund into a stakeholder pension or a stakeholder friendly personal pension.  The fund management charges you pay will be lower, and the potential for a better return on your money by the time you retire will be greater.  Ask an independent financial adviser to carry out a pension transfer analysis for you.  You might get a pleasant surprise and find that you do not have to sit tight in a pension that is earning you no annual bonus.

If you have a With-Profits Investment Bond or Personal Pension, it may be worth checking your statements for the last few years to see what bonus rate you have been getting. Although moving your money out of With-Profits plans may not work for all investors, it is worth checking out your options. You should be aware that any enhanced allocation rates will inevitably be recovered from charges made within the new contract, usually over the first five years of that contract.

If you have any concerns, Plumb Financial Services offer a free With-Profits checking service, where we will check the bonus rates you have been receiving on your investment or pension policy.  If your fund pays a poor bonus rate, we can then examine whether there is a way of moving you out of that fund that is both economical and financially viable for you.

July 27 2012,
by Nick Plumb – (Plumb Financial Services)

Company Pension reform is on the way. If you are an employer, you can’t ignore it.  Nick Plumb of Plumb Financial Services explains why.

The government is set to introduce compulsory workplace pensions from October this year and all employers, from the largest FTSE 100 companies to the smallest firms, will eventually have to provide a workplace pension scheme and will have to make contributions of up to 3% of salary into that pension for all eligible staff.

Initially, smaller businesses with fewer staff need not worry too much, because the new rules will be introduced stages and only larger companies will be forced to offer their workers a company pension scheme in 2012. However, by 2013 any employer with more than 350 employees will be compelled to set up and contribute to a pension scheme for their staff. At some point between 2014 and 2016 that has yet to be confirmed, employers with less than 350 staff will be subjected to the same rules.

To help employers, the government is introducing NEST – the National Employment Savings Trust – which will be a government-led alternative pension scheme for any employer wishing to use it.  However, many financial advisers, myself included, are a little concerned about the viability of NEST and the charging structure, which is estimated to be at least 2% per annum in the initial years, in order to cover the huge set-up costs.

I recommend that any employer who does not currently offer a staff pension scheme, should be thinking seriously about doing so now – not later.

A company pension scheme is not only a highly valued staff benefit that increases loyalty and long service, but it is a very tax efficient way of rewarding staff.  A pension contribution by an employer is a tax deductible expense of the business that reduces taxable profits, which means the business pays less tax.  Unlike a wage payment, a pension contribution also suffers no employer’s or employee’s National Insurance contributions. That means it costs less to pay into a pension for a member of staff than to give the same amount as a wage payment.

A pension scheme can also say a lot about your company to prospective employees. Companies that already provide pension schemes above the compulsory standard to be introduced by the Government are likely to be a much more attractive proposition for new employees looking for a job.

A Group Stakeholder Pension Plan or a Group Personal Pension Plan is easy for any good Independent Financial Adviser to set up for your business and collecting contributions from payroll is a simple administration task for you.

These schemes typically will have charges of 1% or less, which makes them very economical for the members, and potentially better value than the proposed NEST scheme. So, starting a company pension may not be the burden you thought it would be.

Preparing for the forthcoming reforms now, rather than when forced to do so has got to be the best way forward for all businesses.  If you introduce your company pension scheme now, you can phase the inclusion of different levels of staff and management into the scheme over different periods of time at your own pace in line with the needs of your business.  That’s got to be better for you and your business than leaving it until the last minute, and then having to introduce the scheme to all staff at the same time because you are forced to do so by the government.

For Directors, a Small Self Administered Scheme (SSAS) or a Self-Invested Personal Pension (SIPP) is another way to save for retirement. With these schemes you can choose the funds and investments you want to hold in your pension and you can even shelter assets such as a commercial property in your SIPP, so that rental income for that property is received free of tax. 

Whatever your pension needs, Plumb Financial Services can help you make the right choices for your business.  Contact us on 01473 830 301 or by e-mail at plumbfs@aol.com.

July 17 2012,
by Nick Plumb – (Plumb Financial Services)

Independent Financial Adviser, Nick Plumb of Suffolk based Plumb Financial Services, explains how it is possible to have a tax-efficient income from your investments whilst at the same time reducing the Inheritance Tax bill you will leave behind for your children.

Many people who have built up reasonable property and investment values are concerned about leaving an Inheritance Tax bill for their children when they die.  Equally, they cannot give away their capital during their lifetimes in order to reduce the tax, as they need the income it generates to help pay for the increasing cost of retirement.

One method of reducing the potential Inheritance Tax on an estate whilst still having access to investment income, is to utilise a Discounted Gift Trust.

During their working life, most people will build up savings and investment capital, often in tax efficient investments like ISAs and Unit Trusts.  When you stop working and retire, you will probably want those investments to produce extra income, to help fund your retirement. However, whilst you may have sheltered your investments from income tax and capital gains tax during your lifetime, when you die, it is Inheritance Tax that could be a major issue for your children or grandchildren.

The problem with most tax-efficient investments is that they belong to you. In other words, on death they are part of your estate.  ISAs, Unit Trusts, Bonds, National Savings, Shares, cash deposits, and even life insurance proceeds will all form part of your estate when you die.  If you die before retirement age, even your personal pension fund can form part of your estate, as can death in service benefits from occupational pensions.  Add in the value of a main residence, and many individuals could find themselves way above the current inheritance tax threshold of £325,000 or £650,000 for married couples.  Any excess above these figures will be subject to Inheritance Tax at 40%.

However, there is a solution. If you require income from your investments but are unlikely to ever need access to the capital, then you might consider a Discounted Gift Trust.

This is a special type of reversionary interest trust into which you make an absolute gift from your capital. The trust is written in favour of your children or other beneficiaries.  You can’t get the money back after it has been gifted into the trust, so this type of scheme should only be considered by those who have other cash reserves or easy access investments for emergencies.

Seven years after making the capital gift into the trust, the original sum (and any growth on it) will be deemed to have left your estate for tax purposes.  However, although the capital would no longer be part of your estate, you can still have a tax free income from it of up to 5% a year, potentially for the remainder of your lifetime.  When you die, the capital remaining in the Trust will pass completely free of Inheritance Tax to your beneficiaries. 

Even if you died within 7 years of setting up the trust, your beneficiaries would benefit from a ‘discount’ in the amount of inheritance tax that would be payable – hence why the schemes are referred to as ‘Discounted’ Gift Plans.

So, with a Discounted Gift Trust, you can reduce the Inheritance Tax payable on your estate, whilst still having a tax efficient income from your investments in retirement. 

In tax terms – you really can have your cake and eat it!

Nick Plumb is an Independent Financial Adviser and Practice Principal at Plumb Financial Services of Baylham in Suffolk.

The above article is provided only as a general guide and does not constitute specific personal financial advice.

December 30 2011,
by Stewart Hood – (Arcadia Financial Solutions)

PENSION pots have been reduced following a Government switch in the way they are valued and a High Court failure to block it.

The switch from the retail price index (RPI) to the consumer price index (CPI) came into effect in April, after being announced by Chancellor George Osborne in the June 2010 emergency budget. The move will save the Government £6billion a year on public sector pensions.

Two groups, mainly consisting of unions, launched the legal action claiming the move was unlawful, but this month (DEC) the High Court rejected the argument.

This decision has implications for private sector pensions too and financial advisor Stewart Hood, director of the Plymouth office of Arcadia Financial Solutions, said: “A cunning plan might be taking it too far, but the switch from RPI to CPI as a method of revaluing pensions was ingenious if nothing else.

“In simple terms, overnight our pension pots have reduced and to maintain the same expectations in retirement we all need to put more in. It’s all part of the pension crisis playing before our very eyes”.

Mr Hood, a chartered financial planner, said the Government’s method for revaluing state pensions, using CPI rather than RPI, would have repercussions in the private sector, and added: “It seems probable that benchmark will be the industry norm so will have an effect on the private sector too. The change doesn’t seem important but it could affect nearly each and every one of us and in a substantial way, most people receive a state pension of some sort”.

He explained both the CPI and RPI measure “a basket of goods” but stressed there are differences. For example, the CPI excludes most owner occupier costs and the RPI excludes some people at each ends of the social spectrum. “However, the main difference is that RPI uses the arithmetic mean and the CPI the geometric mean as a form of averaging,” Mr Hood said.

Apparently the latter cannot be higher than the former. Clever eh? Arise Blackadder. On that basis pensioners can only lose.

“It’s a technical adjustment but it’s massive – no wonder the unions have contested it, unsuccessfully, in the courts. This will, and the calculations vary, equate to a difference of about one per cent a year on the increase in the value of our pensions and those with future promises of benefits have in effect had their pension pots downsized one per cent a year for the rest of their lives”.

By: Stewart Hood

March 02 2012,
by Stewart Hood -(Arcadia Financial Solutions)

A PLYMOUTH financial adviser has raised concerns about how the UK will pay for it’s ageing population as new figures show the numbers saving into a personal pension have hit a record low. The Office for National Statistics (ONS) has revealed the proportion of UK employees enrolled in workplace pension schemes has fallen below 50 per cent for the first time since records began in 1997.

The figures also highlight the gulf between public and private sector workers. While 48 per cent of workers are now saving into a workplace pension scheme,  down from 55 per cent in 1997 – just a third of private sector workers are part of a company scheme, compared to 83 per cent of public sector employees.

The numbers are likely to be a concern for the Government and the comments of Stewart Hood, director of the Plymouth office of Arcadia Financial Solutions, show ministers are right to be worried.

Mr Hood describes private sector pension take-up as having undergone a “seismic shift” and predicts the pension “headache” will only get worse. “The headache of how the UK is to pay for its ageing population is growing rapidly,” he said. “Public sector pensions have held up in terms of numbers but there has been a seismic shift in the private sector.  This is caused by three main reasons: economic hardship, reduction in the number of final salary schemes, and a lack of confidence in financial products”.

Mr Hood, a chartered financial planner, said the Government is responding by bringing in compulsory enrolment of workers, but feels this has been “watered down”. Under the Government’s plan all workers aged 22 and older will be automatically enrolled into a retirement savings plan offered by their employer from October this year. Ministers hope this will create nine million new savers, although it has been predicted that up to three million employees will opt out immediately.

Under this auto-enrolment scheme, companies must pay a minimum of one per cent of every employee’s salary into a pension, rising to three per cent by 2017. Workers must pay a portion of their salary too, phased in over five years, starting at one per cent and rising to four per cent by 2017. The Government will offer a further one per cent in tax relief.

However Mr Hood said: “This legislation was watered down in the recent Autumn Statement with smaller employers likely to be exempt from the legislation. As it stands at the moment, there is therefore likely to be a tripartite system in respect of pension contributions – public sector, large employers and small employees”.

So we have a system where life expectancy is rising year-on-year, pension contributions similarly declining year-on-year and a lack of appetite to address the problem. “The headache can only get worse”.

By: Stewart Hood

December 16  2011,
by Stewart Hood – (Arcadia Financial Solutions)

A PLYMOUTH financial advisor is concerned that city people are not financially protecting their families – even though it can cost less than the price of a curry.

Stewart Hood, director of the Plymouth office of Arcadia Financial Solutions, said more than half the population have no life insurance and millions of people have no cash reserve to support them if they lost their jobs. Yet Mr Hood, a chartered financial planner, said the cost of protection is less per month than a trip to a restaurant or takeaway.

With Plymouth having more than 20 curry houses, Mr Hood is amazed that our love of spicy food is not equalled by a desire for financial security. “It might be synonymous with India but a lot of us in the UK like a curry, so much so that there are nearly 100,000 people employed in an industry serving 2.5million people a week and with an annual turnover of nearly £3.6billion,” he said.

“Incredibly there are more people employed in the UK curry industry than three of the great industries: coal, steel and shipbuilding combined. But he added: “Here’s some other staggering facts: 54 per cent of adults have no protection on death and four million adults could survive financially for only six months if they lost their jobs”.

The ‘life insurance gap’ in the UK has been calculated at £2.4trillion,” he said. “It looks like some of us are preferring a curry to protecting our family”. And yet providing for your family is so cheap, said Mr Hood. For example, £10 per month will provide £135,000 worth of cover for 20 years on a guaranteed basis for a non-smoking male, aged 29, and non-smoking female, aged 26.

Ok, I have used curry as an example, but even in these difficult economic times we all spend on the little things. And swapping something minor each month for protection for your loved ones will result in something major – financial peace of mind.

Just last year, Britain was revealed as having the third largest mortality protection gap in Europe, behind only Germany and Sweden.

But it’s not a problem just restricted to the UK. The European Insurance Report 2010, questioned 11,000 people across 12 European countries and found hundreds of thousands of people do not have enough life insurance.

The study said just 11 per cent of respondents across Europe claim to be well positioned financially if they die or suffer a long-term illness or disability.

By: Stewart Hood

by Andrew Jenkinson – (Drewberry Insurance)

We thought it would be a good idea to compile a short guide, just to explain as simply as possible, the benefits of private medical insurance (PMI) and how it works for people in the UK.

Definition
A health insurance policy is designed to offer the policy holder with access to private facilities to receive treatment for acute medical conditions. While illness or injury can be a stressful event, this insurance policy is designed relieve some of the stress by ensuring the policyholder receives the best treatment as quickly as possible.

The policies are not designed as a ‘cure all’ for every ailment, but they have many benefits including the member being able to choose their specialist, at a time convenient to themselves at the hospital of their choice.

There is absolutely no difference between private medical insurance (PMI) and health insurance – it is simply just two different names for the same thing, this is not to be confused with permanent health insurance which is very different.

Exclusions
PMI is designed to work in tandem with the NHS with accident and emergency and GP services still being delivered by the NHS. Chronic conditions or incurable ailments are not covered; health insurance is specifically designed for the treatment of “short term” acute conditions.

Generally exclusions may include the following:

• Drug abuse
• Self-inflicted injuries
• Infertility
• Cosmetic surgery
• Preventative treatment
• Mobility aids
• Health Insurance Cover and Products

Policies vary from insurer to insurer and cater for all different budgets. Although many insurers are moving towards modular products the most common tiers of cover range from fully comprehensive, to a mid-range and budget option.

Naturally the greater the level of cover the higher the premiums, where a comprehensive plan will cover both inpatient treatment and outpatient treatment in full, a mid-range option may limit the outpatient treatment to a monetary limit and a basic plan may well provide inpatient cover only.

David, Consultant at Drewberry Insurance stated “The health insurers have come out with a whole suite of products and variations on what we used to consider a standard health insurance policy.

With all these nuances it is so important to speak with an expert when considering cover, not only will they ensure you find a suitable plan but with their buying power you are likely to get more competitive rates”.

In-patient treatments – this means one or more nights spent in a hospital and is the core cover provided by a health insurance plan. It means a stay in a private hospital which will often include en suite bathrooms, telephone and internet and usually results in much faster treatment than through the NHS. Charges covered by the policy for in-patient treatment generally include:

• Hospital bills
• Specialist/consultant fees
• Diagnostic tests
• Psychiatry (although there are grey areas – check for exclusions)
• Physiotherapy or other ongoing out-patient care related to the incident of illness or injury

Day-patient Care – may require attendance from the patient at a clinic or hospital regularly. They may even need to be there for as much as half a day with no hospitalisation required.

Out-patient treatments include:

Diagnosis

• Investigation/diagnostic tests
• Consultation with a specialist or treatment not needing overnight hospitalisation
• Radiotherapy/chemotherapy
• Physiotherapy
• Psychiatry

Important Cost Factors

The most important thing to remember about health insurance is there is no significant ‘standard’ as far as cover is concerned, so they may differ quite dramatically from insurer to insurer. One may offer less, or more cover, for less or more premium, so it pays to know what kind of product you are looking for and how to shop around; comparing apples with apples.

Factors such as voluntary and/or a compulsory excess may also make a difference to the cost of the policy. Other important cost factors include the hospital selection and grade, opting for family private health insurance to cover partners and children and whether alternative therapies and other additional benefits are required.

Agreeing to more NHS treatment and less private, will also reduce cost, and smokers will pay more for health insurance, as will people who are older. For those who are working or intending to live abroad choosing international medical insurance increases the cost and opens up a number of additional questions which are not to be discussed in this guide.

What about company health insurance?
The cover provided by corporate health insurance schemes are very similar to that of an individual plan, the makeup is still that of combining inpatient and outpatient treatment. However the larger the scheme the more competitive the premium per employee and should the scheme be large enough the insurers can provide terms with no medical underwriting.

Drewberry Insurance is a trading style of Drewberry Ltd, who are an appointed representative of Chase Templeton Ltd which is authorised and regulated by the Financial Services Authority |FSA Number 311612.