Q : I have recently been made redundant and am looking for some general financial advice. Which issues should I be addressing?
A: As the recession bites in Northern Ireland, sadly there are a number of individuals who find themselves in a similar situation. While securing new employment will be your top priority, it is as you indicate, also a vital time to review your financial affairs.
Some people are fortunate enough to be provided with a redundancy package which may help ease the immediate financial pressures, others are less fortunate. If you do have monies to invest, then it is important to carefully consider what you should do and not make any quick decisions.
Depending upon your age and likelihood of finding further employment, you need to consider what the primary objective of the funds is.
It may be that you need to invest monies to provide income for the longer term, or it may be that you just need to set aside a lump sum in order to cover your expenditure in the short term.
In any event, you should seek some independent advice and have someone you can trust put together a strategy that will suit your objectives and risk profile.
One of the main issues you need to consider is the loss of key benefits that your employer provided.
Many employers provide comprehensive protection packages that ensure you or your family are well taken care of in the event of death or illness.
This cover will cease as soon as you leave employment.
Death in service benefits are normally a combination of lump sum protection as well as a widow’s or widower’s pension. It is typical to find that this makes up the majority of life cover an individual has in place and therefore during a period of unemployment your family could potentially be left exposed.
You should therefore consider whether or not you need to take some steps to replace your life cover benefits.
This can be achieved by setting up a combination of term cover, which will pay out a lump sum if death occurs within a given time period, and Family Income Benefit, which will pay out a tax free monthly income, again over a specific time period.
It is important that any life cover you put in place is set at the correct level, and again it is always worthwhile speaking to someone who can provide some guidance around this issue. Equally important is the issue of ensuring the policies are written in trust so that the benefits are paid to the beneficiaries in a speedy manner and in the most tax efficient way possible.
These policies work on the same basis as your car or house insurance, in other words, providing the premiums are maintained, then the cover remains in force.
This means that should your circumstances change, for example your next employer provides sufficient cover, then you can simply cancel the policies and the cover will lapse.
The other issue to consider is any loss of sickness or accident cover. Again, some employers will have in place an income replacement policy, should you be unable to work due to ill health.
During a period of unemployment, it would not be possible to maintain similar arrangements as most of these policies are linked to paying out a percentage of salary.
However, health cover plans such as BUPA can be maintained irrespective of your employment situation, so again if this type of cover is required, you should consider making alternative arrangements.
Raymond Mulligan is managing director of Johnston Campbell, a company of independent financial advisers regulated by the Financial Services Authority. For further information, please contact email@example.com or (028) 9022-1010.