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FOOL'S EYE VIEW
By
One of the most difficult lessons that I've had to learn in recent years is that getting rich is firstly about preserving your capital. Once you've understand this golden rule, you can grow your wealth over time with greater confidence. Sadly, my lessons in preserving wealth have been pretty harsh at times: one bad investment cost me a six-figure sum. Oops! Losing three-quarters of one of the biggest piles of money that I've ever had was a pretty miserable experience. However, this blow was cushioned by the fact that it took me almost exactly a year to make this money and then lose it, so it was a classic case of 'easy come, easy go'! However, one thing this roller-coaster experience did teach me was to think again about the value of what I already have. I have a modest family home and a few belongings, a wonderful wife and delightful children, plus a reasonable income, savings and investments, all of which make life more precious. Indeed, it was an interesting exercise to estimate how much these are worth to me, financially speaking, and how much I stood to lose if I no longer had them. Usually, you are probably your most important asset, because your earning power makes you more valuable than your home, car or any other possession. If you earn, say, £25,000 a year, it could take up to twenty times your income – half a million quid - to replace your wage if you died. So, it's vital to take steps to protect yourself, your family and your possessions from the fickle finger of fate. Here are ten ways to do just that: DEALING WITH DEATH 1. Make a Will If you trust the government completely and are absolutely sure that it always has your best interests at heart, you don't need to make a Will and can die happily intestate. However, if you live on this planet, and anyone relies on you financially (such as a partner, children or elderly relative), you need to leave instructions on how to distribute your assets when you die. If you don't, you're condemning your relatives and friends to financial worries on top of their grief. 2. Protect your life Around one in twenty workers (5%) die while they still have dependent children. Even if you have a working partner, the loss of your income could be a huge blow to your family. Without adequate life insurance, your family could suffer serious financial hardship - even to the point of being forced to sell the family home and moving to a cheaper area. However, before you rush out to buy life insurance, here are two warnings. First, buying this protection on the high street is terrifically expensive, so shop around online for lower premiums. Second, beware of 'joint life, first death' policies that protect couples, because you can get twice as much protection for only a few pounds a month more. 3. Protect your partner Early in 2003, I wrote an article about life insurance, but omitted to mention that it's a grave mistake to insure your life adequately while ignoring the financial havoc that the death of a partner could inflict. Later that week, I received a very moving email from a reader who pointed out my lapse and explained that this very thing happened to him. Although he had sufficient life insurance from his employer and a mortgage-related policy, his non-working wife had little cover. Supporting his children while continuing to work caused this unfortunate widower serious financial and emotional heartbreak. Please don't let this happen to you, so insure your partner! COPING WITH ILL-HEALTH 4. Safeguard your income If you're out of action for a long period following an illness or injury, your employer won't pay you forever. At some point, say, three to six months, your employer will cut your pay and, eventually, it will stop paying your wage. If you're very lucky, your company will have a group income protection insurance that will eventually kick in and pay you a monthly income until you retire. However, if you don't have this cover through work, you could buy an individual policy that will start to pay out when your employer's sick pay ends. 5. Protect against life-threatening illnesses If you ask people what illnesses they fear most, the majority will admit to worrying about suffering a heart attack or stroke or contracting cancer. Hence, insurance companies sell critical illness insurance, which pays out a tax-free lump sum if you come down with one of a number of listed conditions, including the three mentioned above, plus kidney failure, major organ transplant and permanent paralysis. Almost 1.1 million critical illness policies were sold in 2003, with many of these protecting mortgages. However, if you've bought it via your mortgage lender, you're certain to be paying well over the odds. 6. Consider alternatives to the NHS If you have a medical problem that is neither acute nor life-threatening, you could find yourself on a long waiting list for NHS treatment. Currently, there are around a million people waiting for non-urgent NHS treatment. If you want to shorten your wait for treatment, or prefer the privacy of a private room, you could look into buying private medical insurance (PMI). More than six million people are covered by PMI, often via their employer, with BUPA being the market leader. 7. Fend off accident, sickness and unemployment In 2003, more than a third of new mortgage borrowers (36%) took out mortgage payment protection insurance (MPPI) to meet their home loan repayments if they become unable to work because of accident, sickness or unemployment (referred to as ASU). In fact, over a quarter of all mortgages – almost three million home loans – are protected by MPPI. However, mortgage lenders massively overcharge their borrowers for this cover, so it's crucial to shop around for lower premiums. Three of the cheapest providers are Goodfellows, helpupay and Paymentshield. Note that you can also buy ASU policies to cover personal loans, credit cards and other debts. However, I wouldn't bother, because lenders make an absolute killing from these policies. Typically, four-fifths of your premium (80%) is commission! SHIELDING OTHER ASSETS 8. Insure your home One recent survey revealed that two-thirds of consumers automatically renew their buildings and contents insurance without shopping around. Aargh! What's more, many of us buy our home insurance from mortgage lenders, which usually charge the very highest premiums . If you'd like a better deal, check out these ten tips to cutting the cost of home insurance. 9. Protect yourself when you travel Up to two million Britons will encounter problems while travelling abroad this year, ranging from lost luggage and minor injuries through to road traffic accidents and serious illnesses. Sadly, around a quarter of these unlucky folk will have no travel insurance. Oops! To me, going on holiday without travel insurance is just asking for serious trouble – and huge bills – to land in your lap. But don't buy it from travel agents, who charge up to ten times as much as the Best Buy providers, often for inferior cover. 10. Cover your car Motor insurance is a legal requirement, but many drivers get by with third party or third party, fire and theft cover. However, if you shop around carefully, you could cut your premiums by a third, according to research from the AA. Given the AA's average 'shoparound' saving of £284, you may find that upgrading to comprehensive cover could cost a lot less than you think. And, of course, if you are at fault in an accident, you won't have to stump up for repairs to your car... More: Visit our Insurance centre | Policies That Really Pay Off.