COMMENT
Disaster-Proof Your Finances

By Alison Hunt (TMFAlly)
June 16, 2005

According to a recent report from Virgin Money Life Insurance, nearly three quarters of us (73%) are happy with our lives.

So why are we so cheerful? Is it thanks to our designer clothes, expensive cars and fancy holidays?

Nope, the reason most of us are happy is due to our loved ones.

One third of us feel the health and happiness of our family is paramount to our own happiness, with 29% feeling a close relationship with our partner or spouse to be the most important contributing factor.

And when it comes down to what could make us unhappy, a third of us say splitting up with our partner. Financial problems rate highly here too, with a third of us believing that money can buy happiness.

So despite our seeming obsession with material goods, deep down it appears we still value the important things in life, whilst fearing not being able to cope financially.

Financial security is important – most of us would agree that a safety net of rainy day money and other savings and investments make us feel more secure about our family's welfare. It can help us sleep soundly at night, too!

However, do we have the same sort of financial security for things that may happen in the future?

What if you were to lose your job? Or if you or your partner were to become ill and were unable to work? Could the other one cope financially? What about childcare? And if the worst should happen, and one of you dies, could the other one support the family, financially?

Depressing, isn't it. But these things happen to hundreds of people everyday and savings don't tend to last very long.

Luckily, there is a solution. By ensuring you and your family have adequate cover you can protect yourselves should the worst happen. What's more, this cover doesn't have to be expensive, as by shopping around many policies can be obtained for just a few pounds each month (depending on your age & circumstances).

The two policies most commonly taken out are:

Life Insurance – usually a must for anyone with dependents – and a policy worth around ten times your gross salary should ensure your partner could pay off the mortgage and still have some money to live on.

Critical Illness cover - this will pay out a lump sum in the event you contract an illness from a defined list (such as heart attack, cancer or stroke).

In addition, Income Protection Insurance will pay out if you are unable to work for any reason, but it's essential to check the wording carefully before taking out a policy. And depending on your attitude to risk, there is a whole number of policies available to protect against a wealth of possible eventualities.

But the brilliant thing is, many people can actually obtain a lot of this insurance for free.

How? Due to the fact many companies provide us with substantial cover as part of our benefits packages.

You may only have been interested in whether or not you could have a company car, mobile phone and expense account, but are you also entitled to Life Insurance, Critical Illness cover and Income Protection? Many companies offer generous benefits to your spouse, too which can all add up to a substantial amount of cover.

So make sure that you and your family have all the protection you need – but remember to check that your company isn't providing this cover already. Don't forget to also check out the amount of cover you're entitled to – any shortfall can be made up by obtaining personal policies.

Remember, insurance policies don't have to cost a fortune if you shop around (you could start off by getting a competitive quote from Fool partner The Idol) but they may just help you sleep soundly at night.

Find out more about Life cover, Critical Illness and Income Protection in our Insurance Centre.