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The Big Questions: Should I take out life cover or invest my money?
Stock market volatility, economic uncertainty and a general feeling of unease have led many of us to reassess our financial situation during the coronavirus pandemic. The current situation provides an opportunity to review and amend your financial plans to ensure a good level of financial flexibility and essential resilience against future shakeups whilst remaining in line with your investment and saving goals. It also means asking evergreen financial questions, one of which is how and where we should invest our money.
The Investment Argument
While the stock markets have recovered from much of the shock experienced at the initial stage of lockdown in March, there is still some way to go. The global lockdown has changed industry as we know it which means it’s important to evaluate your portfolio for any adjustments that can be made in this regard. This means reviewing your financial objectives to determine the suitability of certain types of investment and making tweaks as necessary. It might also mean considering whether you want to invest in bonds, the shares of individual companies or establish a fund-based portfolio.
Investing in the current climate means accepting a certain level of volatility which means you will also need to work out the level of risk with which you are comfortable. There are ways to balance this out – for example, by choosing active versus passive investments, and carefully selecting the type of vehicles you want to use. You could also balance out the equity portion of the portfolio with non-equity investments.
However, this lower level of risk will in turn usually mean a lower level of return and some investors would rather take a different route than have a very low risk portfolio. As with any investment, it is essential to take professional specialist advice before making any firm decisions about your capital to ensure that you are fully informed of any potential risk or downside.
If you currently take an income from your investments, this is a more challenging time. You could choose to adopt a growth strategy or switch to investments that offer higher yields, but the latter will be associated with a higher level of risk. Reassessing your investments, strategies and tax wrappers from a diversification perspective is an effective way to weather the storm.
In the current climate, it could be effective to gradually invest money over a number of months with the view to hold investments for a longer time period and provide a buffer against future economic peaks and troughs. Again, we would always advise taking professional guidance on any investment decision.
The Protection Argument
If you choose to spend your investment capital, taking out protection or upgrading your cover is an effective route to take. Life cover products have garnered a lot of attention in recent months with a huge increase in enquiries and one provider reporting an 83% year-on-year increase in life insurance claims.
GRiD research shows that the dependents of employees with group life benefits have been paid benefits valued at a total of £56,709,154, including 475 lump sum death benefit claims, as a result of COVID-19 between 1 January and 30 June 2020, When compared to the average salary of UK employees, pay-outs from group risk insurers would keep the average earner’s family and dependents going for more than four years. These figures drive home the true value of life cover and the support it can provide during times of crisis.
Since the pandemic hit, the value of protection has become stark. But while COVID-19 has shaken things up in a way many of us have never – and will likely never again – witness in our lifetimes, it makes everlasting good financial sense to prepare for the unexpected.
We must remember that there will always be situations both in our personal lives and the bigger picture that will impact the journey down a straight road, such as a critical illness diagnosis or financial recession. Having adequate protection in place will create essential safeguards against unforeseen events for both yourself and your family, regardless of how much excess cash you may have.
Protection is one of the most important investments you can make which is why we would tend to advise that the question shouldn’t be “life cover or investments” but how to make space for both in your financial situation. The pandemic has not significantly impacted the protection market – there are relatively few underwriting restrictions and premium prices remain largely the same with a range of good value policies available. If you already have protection in place, now is the time to review your arrangements and ensure your plan is protected and optimised for yourself and any dependents.
Plan of Action
We would advise as we do in any uncertain period to review your arrangements and adjust for optimum returns but also maintain focus on your long-term financial goals and fundamentals. For advice on investments, life cover and to check that your arrangements such as expression of wish forms remain fit for purpose, contact us today.