Plan for the best, prepare for the worst
The extent to which people and businesses are being financially impacted right now reinforces just how important it is to plan for the best and prepare for the worst. This adage applies as much to financial planning as anything else in life.
Much of our work with clients is centred around making positive and purposeful plans to help them achieve future goals. And more often than not, a structured investment strategy will be at the heart of that financial plan.
But planning and investing might all be in vain if you haven’t mitigated very real and obvious risks; ones that are nothing to do with markets or your investments.
Anyone for tennis?
Take the Wimbledon tennis tournament, for example. The All-England Club regularly invest in their facilities with the aim of improving the visitor experience and ultimately increase their profits. But COVID-19 has forced them to cancel this years’ tournament, which will lose them tens of millions of pounds in revenue.
You’d expect the club to have an ample rainy day fund to see them through (important in any financial plan), but their decision to cancel was made easier by the fact they mitigated this risk a number of years ago.
The SARS outbreak in 2003 first brought virus-related risks to their attention, so they took out an insurance policy that would pay-out if they needed to cancel Wimbledon in the event of a pandemic. It wouldn’t have been an easy decision for them at the time (the insurance premium is £1.5m each year), but their coronavirus pay-out is speculated to be around £114m.
Never mind retractable rooves – the club’s foresight in identifying and mitigating what they felt represented a serious risk to their financial health will go down as the best investment they’ve ever made.
When did you last spring out of bed of a morning with an irresistable urge to buy an insurance policy? Not the most exciting aspect of your finances are they? I used to think that too..
A few years ago…
An abiding memory from my early days as an adviser for HSBC was a customer (Anthony) who approached me for financial advice. In his forties and married with three young children, Anthony owned his own business, which afforded his family a nice house in Fulham and a very comfortable lifestyle.
As well as investing some savings and getting his retirement plan going, Anthony wanted to understand how he could protect his family should he suffer serious ill health or worse. His concerns were very real – Anthony’s income was integral to the family’s financial security and losing this for any reason would have serious implications.
It was abundantly clear that his small emergency fund, modest pension pot and the equity in their home didn’t provide enough of a safeguard. The obvious solution was to put some life, critical illness and income protection insurance in place and we established the amount of cover he’d need to protect the financial foundations he’d worked hard to build.
An offer you can’t refuse
When completing the medical questionnaire for the insurance policies, Anthony disclosed that he’d suffered a leaked brain aneurysm two years’ prior, but timely surgical intervention saw him make a full and very quick recovery.
Naturally this made him a higher risk prospect in the eyes of insurance underwriters, but thankfully most were still prepared to offer him cover. It would come at nearly twice the quoted cost and a couple of exclusions, but on the whole I felt it was a very fair and reasonable offer.
Anthony didn’t agree at first. He felt the underwriters were being overly cautious and the £250 per month premium was very high (he was earning £6,000 per month). But remembering what was driving him to want to cover his blindspots (financial security for his family), he begrudgingly accepted the terms.
And I’m glad he did. Six months later, I was sat in Anthony’s living room with his wife, Lisa, and her three children. Anthony had suffered a full-on stroke, but the emergency services were unable to get to him in time.
Lisa had informed the bank of his passing and at the same time stumbled across my business card amongst Anthony’s files, so she reached out to me for some financial guidance. When we met, she explained she’d been left with no income, a highly-mortgaged house, some business debts and barely any savings.
Being able to reassure her that the insurance pay-out would be enough to clear the mortgage, maintain their lifestyle and provide a good education for the children still ranks as the most satisfying moment of my professional life. Not a happy ending as such, more a huge sigh of relief.
It meant Lisa could focus on getting her and the children through a very emotional and difficult period without any major upheaval or money worries. It simply doesn’t bear thinking how different their lives might’ve been without Anthony’s foresight.
How would you cope?
Talking about morbid stuff like death, illness and insurance policies you most likely won’t ever need to claim on can be quite uncomfortable. But every now and then, it’s worth taking a moment to ask yourself how your finances would stand up to life’s unforeseen and unfortunate events.
If you (or anyone close to you) has dependents, a mortgage, business or future plans that might need protecting in some way, then do get in touch. It might be the best financial investment you ever make.
Stay healthy. Stay safe. Stay home.
Please note that life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse. Critical Illness and Income Protection plans may not cover all definitions of an illness. It is important to check with the individual providers terms and conditions.