September 2007

Q & A - A "SALARY" CONTINUATION PLAN?

Q. I am a senior cost engineer in the oil industry and have just bought a house worth £325,000-00 and I am asking myself how could I pay the mortgage if I was ill or injured and unable to work? I operate through my own limited company and my remuneration is made up from a small salary and dividends.

A. Bill Saunders, a Certified Financial Planner with Acumen Financial Planning in Aberdeen, who can be contacted on 012224 573904 said: most people think that they have insured their biggest asset by insuring their property. However for most individuals with most of their career ahead of them rather than behind them their potential future earnings are their biggest asset. It makes sense therefore to insure these future earnings as far as possible. The type of insurance that will pay you an income if you are unable to work through illness or injury after an initial waiting period is known as an income protection plan or a permanent health insurance policy. Unfortunately many insurance companies, but not all, do not recognise dividends as earnings. The limited number of companies that do recognise dividends as earnings will generally allow you to insure 50% of your total gross remuneration. Provided you rather than your limited company has paid for the plan the income benefit is paid to you tax free when claiming and will be paid until you return to work or the plan reaches it’s expiry date. As with any insurance policy your application will be subject to underwriting for both health and occupation. If you seek the help of a financial planner they will be able to find the most appropriate provider and cover for you.