Avoid a Christmas meltdown this year
Forget about the problems in Europe and the global economy, Christmas is a time to eat, drink and be merry! But for that you need stamina, both mental and physical. There is the shopping to be done, the parties to be arranged and attended and the extended family to be entertained.
And what about the dark side of Christmas?
No, not just those unwanted gifts that will end up being recycled next year, your health and happiness may also be affected by an over-indulgence in festive food and drink, not to speak of having to spend too much time with your nearest and dearest.
THE EXTRA MINCE PIE RISK
Mulled wine, mince pies, Christmas pud… it is no wonder that most of us start piling on the calories over the festive period. While it may only lead to a snooze after your Christmas lunch, it could have more serious consequences for some people. In the worse-case scenario you could end up in hospital on Boxing Day after a heart attack. Being overweight can also lead to the onset of diabetes type 2.
So it could be a wise precaution to review your insurance cover before Christmas. If you have critical illness insurance, it will pay out a lump sum if you have a severe heart attack or suffer lasting effects from a stroke, as well as covering a wide range of other illnesses.
Critical illness insurance is normally combined with life insurance, so if you drop dead during the Queen’s Christmas message, taking out this type of insurance could also ensure that your dependants don’t have to endure the deprivations of Bob Cratchit and his family over future Christmases.
The cost of a combined critical illness and life insurance policy of £100,000 over a 25-year term averages £57 a month for a 40-year-old man and £52 for a woman of the same age. Companies that offer this type of cover include Aviva, NFU Mutual, Legal & General and Bright Grey.
However, an alternative to critical illness cover is income protection insurance, which can be a better option because it covers a much wider range of illnesses and provides a replacement income while you are off work. So if you develop a back problem from hanging up your Christmas decorations which results in you taking time off work, it would pay out.
The premiums for income protection can also be 50% lower with companies such as the Cirencester Friendly. But if you already have a pre-Christmas spare tyre, it could push up your insurance costs.
Matt Morris of protection advisers Lifesearch says: "Obesity is a big issue with insurance companies. They have got much harsher about people’s BMI (Body Mass Index) over the past few years. Premiums used to be increased for those with a BMI of over 30, it has now gone down to 26-27 in some cases."
As Morris points out: "Santa would certainly have his premiums loaded - maybe even doubled, if he wanted life and critical illness cover."
RISKS TO YOUR RELATIONSHIP
January is the peak time for couples to start divorce proceedings after the stresses and strains of spending too much time together over Christmas. If you do decide to call time on your relationship, you could – in theory – be divorced by Easter at a cost of just £65.
In practice it is likely to take much longer and cost a lot more – £20,000 to £40,000, according to Intelligent Divorce. You cannot insure against the financial fall-out of divorce, and pre-nuptial agreements have no legal status in the UK.
However, if you do find you are driven crackers by your partner over Christmas, try to cool down sufficiently afterwards to agree as much as you can before you consult your lawyers. It can save you both thousands of pounds.
Couples who come to an amicable agreement can arrange their own DIY divorce with the help of websites such as Divorce Online (divorce-online.co.uk). However, if you have acquired considerable financial assets during your marriage it can be more complicated.
Pensions can be a large part of a couple’s assets. If this is the case, it is best to consult an independent fi nancial adviser specialising in pensions so you know your options before going to a lawyer.
When you have reached a financial agreement, it is also essential to secure a Consent Order from the court. If not your ex could come back and make claims if you win a future Christmas lottery or on your other assets, properties, pensions or inheritances – regardless of how long ago you divorced.
Unemployment is on the increase and some employers have a nasty habit of waiting until just before or after Christmas to announce redundancies. It was in December 2008, for example, that Woolworths went to the wall. If you are worried and feel your own resources might not tide you over a period between jobs, you could take out unemployment insurance.
This insurance is better known as payment protection insurance (PPI). Although it has gained a poor reputation because it had been overpriced and mis-sold, there is nothing wrong with the cover itself.
Indeed, it can prove a lifeline by providing a short-term replacement income to cover your mortgage and other everyday expenses until you find other employment. Monthly payouts will normally be made for 12 months, following a deferred period which can range from one day to six months.
This cover can be bought cheaply online from companies such as British Insurance, Paymentcare and Columbus. Normally it is combined with accident and sickness cover. British Insurance is one of the few which sells stand-alone unemployment cover.
However, policies don’t pay out if you knew there was a possibility of being made redundant when you took out the cover.
THE RISK OF DEBT
For older generations it is sometimes difficult to understand how their younger relatives can get into debt over Christmas. However, modern-day parents often find it hard to disappoint their offspring by not buying them the latest toys or gadgets for their Christmas stockings, even if they can ill-afford them.
The biggest Christmas spenders are people aged 35 to 44, according to research by HSBC. They are also the most likely to use credit or store cards to pay for presents. If you are fortunate not to be in this position and you don’t want to be portrayed as a Christmas ‘Scrooge’, the best thing you can do is to give some practical advice instead.
You can point out that store cards are a particularly expensive option and suggest transferring the balance to a credit card with a 0% introductory rate such as those offered by Barclaycard, Halifax or Virgin Money. In this way the balance can be paid off faster. With any type of credit card, the best advice is to clear the balance quickly.
The worst you can do is pay the monthly minimum. Moneysupermarket.com has calculated that someone with a balance of £500 on a card with an average APR of 18.12%, making only the minimum repayment of 2.5% each month, could take 11 years and 8 months to clear their debt. They would also end up forking out an extra £477 in interest payments in the process.
This article was written for our sister website Money Observer
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
Payment protection insurance is designed to cover you should you fall ill, have an accident or lose your job and can’t make repayments on loans or credit cards. However, research by consumer watchdogs found the cover to be overpriced, filled with exclusions (policies exclude self-employment, contract employees and pre-existing medical conditions) and were often mis-sold because the exclusions were never fully explained. In May 2011, the High Court ruled banks had knowingly mis-sold PPI and ordered them to compensate around two million consumers.
Income protection insurance
If you can’t work in the event of sickness or illness, income protection insurance aims to give you an income, with the amount of income set by you up to 75% of your gross (before tax) income with the premiums varying by how much of your salary you want to cover, as well as your age and health and when you want to start receive any payouts. Any payouts from income protection insurance are tax-free and usually continue until you recover, reach your selected pension age or the period of cover specified in the policy comes to an end. Income protection insurance does not cover redundancy but you can buy it as a bolt-on.
Critical illness insurance
This cover pays out a tax-free lump sum if you become seriously ill. All policies should cover seven core conditions: cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. You must normally survive at least one month after becoming critically ill, before the policy will pay out. Payouts are determined by premiums and premiums are determined by the severity of your illness, the less severe the lower the premiums.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.