A NEW year is a great opportunity to check that your finances are on the right track. Now is the chance to change your investment direction, ensure the right sums are being set aside to meet plans for retirement, protect your family and safeguard your lifestyle.
Start by protecting anyone who depends on you. Term assurance pays out a fixed sum in the event of your unexpected death. Calculate how much would typically be needed to pay off any mortgage and other debts and support your dependents for, say, three to six months.
Premiums are cheap for such protection. For £100,000 payout, a non-smoking male aged 35 next birthday would pay monthly between £6.63 (Sainsbury’s Finance) and £15 (Lutine Assurance) and a female £5.15-£15 (same providers).
Then consider two other forms of protection: income, in case you are unable to do your work, and critical illness.
With income protection, ensure that your job is properly defined so that payment can be made if you are unable to continue your work for whatever reason. There is no point paying into a policy where a claim is later turned down because you are capable of undertaking any work.
To receive £250 weekly, a non-smoking male administration clerk who will be 40 next birthday would need to pay £12.07 (Zurich Assurance) to £15.66 (Unum) monthly for the most competitive rates, depending upon whether the deferment period before payment was 13 or 52 weeks. A mid-way 26-week delay is also popular.
According to Moneyfacts Investment Life & Pensions, females can pay more. In the above case, the cheapest rates would be £12.72 (Cirencester Friendly) to £18.16 (Exeter Family and Unum) but could rise to £48.72-£63.42 (both HSBC Life), depending on the weeks deferred before payment is received.
One area to consider is taking out a policy known as a Holloway plan through a friendly society. This has the benefit of paying out in the event no claim is lodged. Mutual societies offering such a scheme include Cirencester Friendly, Exeter Family, Holloway Friendly and Shepherds Friendly.
Critical illness should also be considered. Insurance policies will pay out if you should suffer from one of a defined list of critical conditions including cancer and strokes. The payment should help to cover the additional costs that may be incurred. Read policies carefully as their breadth and interpretation vary considerably. The cheapest may not be the most appropriate taking into account family medical history and lifestyle.
If you do not already have an independent financial adviser, select one for the new year who specialises in those areas where you need help. Protection insurance is a minefield if you do not have someone guiding you in the right direction. An experienced IFA is invaluable and should provide the financial help that a solicitor offers in the legal field.
Next protect your home and belongings. Online calculators are rough and ready guides but should not be relied upon. With buildings cover, the amount to be insured is the rebuilding cost, not the value of the property and ground. The most reliable way to ensure the figure is not under-estimated is to ask a chartered surveyor to calculate the cost.
Look for a comprehensive policy which gives accommo-dation assistance in the event the home has to be evacuated.
With contents cover, it is easy to overlook bedding and clothing and to grossly underestimate inherited items. The aim of such insurance is to reinstate to the position before a claim and so calculate the true cost of replacing all belongings at current values.
There are some excellent home policies which allow for a proportion of belongings to be outside the property, such as when you are at work, shopping or even on holiday.
Turning to any home loan, check if your arrangement is as competitive as it could be and, if you are able to, over-pay in order to reduce the outstanding loan. With so many mortgages based on the extremely low Bank of England 0.5 per cent base rate, this may be the time to extend the sum borrowed to improve the property.
Check savings to ensure competitive rates. Some investors are still being paid derisory rates, such as 0.05 per cent (Darlington, HSBC), 0.10 per cent (Beverley Building Society, Derbyshire, Nationwide, NatWest, RBS, Virgin Money, Yorkshire Bank) and 0.12 per cent (Britannia, Smile).
Note the date a bonus addition expires so you can switch to another competitive product. Monthly savings schemes and fixed rate offers usually pay higher rates but early access can be penalised.
Make sure investments are as tax-efficient as possible. The four best known examples are:
n Individual Savings Account where £10,680 can be sheltered annually for each adult with the whole amount invested in the stock market or up to half placed in an approved deposit account.
n Pension, which can be started even for a baby.
n Venture Capital Trust with 30 per cent tax relief up to £200,000 if held five years.
n Enterprise Investment Scheme with 30 per cent tax relief up to £500,000 if held for three years and exempt from inheritance tax after two years.
Yet there is another scheme – the Tax-Exempt Savings Plan, or TESP – which ought to be better known. This allows up to £270 annually or £25 monthly, even though the figures do not equate, to be placed in a friendly society investment scheme.
The top such plans are paying cracking rates. For 10-year policies maturing at the end of last year, Sheffield Mutual paid 12.72 per cent and Druids Sheffield in Rotherham paid 11.05 per cent, both per annum. This includes a discretionary grant with Druids Sheffield.
Don’t forget that if you do not maximise your ISA allowance, it is not possible to go back to a prior year.
For where to invest, discuss your plans and attitude to risk with a trusted IFA. Emerging markets is the sector currently most favoured by investment trust managers. Keep up to 10 per cent for alternative fields like gold, film, forestry and wine.
Compare current account bank packages. Santander is currently paying five per cent up to £2,500 for the first year. With a credit card, look at the cashback and other benefits or those who have a zero rate for balance transfers.
With winter here, check for the best energy deal, ideally looking for a dual fuel discount and paid by direct debit.