Inv-Young Families -Ian McKeever & Co.

Life is now more serious. You have commitments and security has become the central issue. The calls on your money are numerous. Buying a house, servicing the mortgage, and setting up a home are the first priorities. You will be finding that children are very, very expensive, both in terms of direct costs but even more so in terms of indirect costs. Someone needs to look after them 24 hours a day and this is bound to reduce your joint income considerably or else it will generate very high nanny costs.

It is a fact of financial life that the less money you have, the more you need to spend protecting against shear bad luck. If you have a lot of money insurance is unnecessary because you have a buffer that enables you to bear the risk yourself.

Now is the time to identify what the threats are to your financial security. Luckily insurance is cheap while you are young. Although it is relatively easy to work out what the financial loss to the family will be if the breadwinner is killed or seriously injured, the loss of the person primarily responsible for caring for the children could prove equally devastating, financially as well as emotionally. Cooking cleaning changing nappies and taking the kids to birthday parties might seem financially insignificant but in reality the replacement cost of such services is considerable.

There are two risks and three forms of insurance to deal with them. Remember that many employer provide various forms of insurance to deal with some or all of these risks as part of the benefits package so use those policies if you can as its cheaper and the underwriting requirements tend to be less strict. One point to bear in mind is that if you subsequently change employers many insurers providing these group policies allow you to take out an individual policy to continue with the same cover without any underwriting requirement at all. This may be important if you have made a claim in the past or are concerned about the current state of health of either yourself or your partner. Thinking about it later and going into the market might prove expensive if the insurer has reason to suspect that you are high risk.

Life Insurance
Simple term insurance is cheap. Take into account any benefits from work as many employers provide a death benefit of four times salary and reduce the sum assured to allow for it. If you or your partner spends most of their time looking after children consider how much it would cost to replace those services on an annual basis and multiply by a factor of at least ten, particularly if the children are small.

Permanent Health Insurance
This provides a replacement income if you cannot work. It is wise to aim to replace most of your net income but take into account any benefits provided by your employer and likely state benefits when deciding on the level of cover. In order to reduce the cost you should consider how long you could go if you were unable to work. A long waiting period reduces costs and makes sure that you only insure what needs to be insured. See Self Insurance.

Private medical insurance
This covers the cost of private treatment and means that your medical problems will be dealt with quickly and efficiently by consultants but it is not cheap. The NHS will in general be less efficient, take up more of your time and you are likely to be dealt with by more junior doctors but you will still get reasonably good health care and because you are already paying for it through the tax system it will be almost free at the point of delivery. Private Medical Insurance is attractive. If the breadwinner gets cover as a benefit from work, it is well worth considering extending that cover to the whole family, if only because everyone in the family is important. However, medical insurance is in part about improving your standard of living, and attractive as it is given the availability of NHS treatment, income replacement through Permanent Health Insurance is probably a higher priority.

Self Insurance
The person that sells an insurance policy is paid commission, it costs the insurer money to administer the policy, there is a margin for profit and what is left is used to pay claims. Insurers profit from the process and policyholders lose. However in life things can happen that can have devastating financial consequences. It is sensible to insure against such eventualities.

Small things go wrong all the time and you need to have some easily accessible savings in the form of deposit accounts or savings certificates because they enables the family to be able to deal with minor emergencies when they occur. You then only have to insure against the big risks.

It is not primarily about getting the very best investment returns it is about having financial security and flexibility. As a rule of thumb it is useful have six months net salary as reasonably easily accessible savings. Some of this should be in accounts with no penalties on early encashment but the rest can be in accounts where more notice is required and more interest can be earned on the money. For example with that level of savings you can think about having a six month waiting period on Permanent Health Insurance, that way you have the insurance you need and costs are minimised. For investment of this money see Young Adults

Once sufficient liquid assets have been accumulated investment strategy moves to more long-term considerations as discussed on the page describing investment objectives for the mature family.