Cutting Back on Insurance Policies before a Trust Deed

Possible future users of a Trust deed who are facing the troubles associated with mounting debts tend to seek out every opportunity to cut their costs. Motivated by the need to repay their debts, and to have enough money to live on, this may seem like a natural course of action. However our Trust-Deed.co.uk advisers have witnessed cases in which the cutbacks can go too far, leaving those in debt and those using a trust deed very exposed to risk and perils. This is backed up by a report from the British Insurance Brokers’ Association which reports that their brokers have seen a doubling in the cancellation of insurance policies in the past twelve months.

Life Insurance & Your Trust Deed
Life insurance is often one of the first insurances to be cut when in serious debt or using a trust deed. The chances of needing to claim may seem remote, however the consequences of cancelling your life insurance could be terrible for your family should the worst happen.

It is generally acceptable to pay for a reasonable amount of life insurance during a trust deed. This is especially the case where those around you are financially dependent upon you. Before going ahead and signing a Scottish trust deed you should seek advice from a financial adviser about exactly how your life insurance is structured. There are ways to ensure that your intended beneficiaries do indeed benefit directly if you pass away during a protected trust deed. However, if the correct steps aren’t taken it may become the case that any payment from your life insurance policy actually goes to your protected trust deed in the first instance, leaving your dependents in real financial trouble. Seek qualified financial advice on this subject before signing a trust deed in Scotland.

Critical Illness & Your Trust Deed
Critical illness cover is often overlooked by the UK public in general. Statistically speaking, if you are below retirement age and fall victim to a serious illness, you are five times more likely to live than to pass away. The awful thing is that, financially speaking, your dependants may have been better off if you had died (where you have life cover but no critical illness policy).

It’s often possible to buy reasonably priced insurances policies that combine life and critical illness insurance benefits. Once again, before you sign a trust deed in Scotland take advice on the structure of any such policy so that the benefits will go to those you intended them to rather than your creditors. A reasonably priced critical illness policy is also likely to be acceptable expenditure during a trust deed.

Worryingly, our trust deed advice team also often hears from people that have cut the most basic of insurance policies.

Home Contents Insurance & Your Trust Deed
Home contents insurance is a typical example of this. While a little bit of money might be saved each month, if you are in serious debt or a Scottish trust deed, the costs of a flood from a burst pipe, a small fire, or a burglary could completely financially ruin you.

Building Insurance & Your Trust Deed
We also hear from homeowners and trust deed users who have allowed their building insurance to lapse. Of course this leaves them horribly exposed to events that are out of their control. It is a huge gamble for anyone to take. Buildings insurance and home contents insurance are absolutely acceptable elements of allowed expenditure during a protected trust deed.

Legally Required Insurance
There are also occasions where those in serious debt (perhaps just before signing a trust deed) allow themselves to break the law to save money on insurance, for example driving without insurance. Where someone needs a car for reasonable reasons associated expenditure will be allowable during a trust deed in Scotland.

Our Advice
If you have reached the point at which you must consider cutting back on the most vital insurances to continue to manage your debt repayments, it’s time to seek out good debt or trust deed advice. While a protected trust deed should be treated as a last resort, it’s easy to argue that it represents a better option than leaving yourself (and your family) dangerously exposed to risks and perils that you have little or no control over. The urge to repay unmanageable debts certainly doesn’t justify this type of exposure. Debt solutions, such as the trust deed, prioritise the payment for essentials such as vital insurance over and above unsecured debt repayments.

To find out more about using a trust deed to repay your debts, without jeopardising yourself and your family by cutting back on insurance, visit the Trust-Deed.co.uk website. On the site you’ll find fellow trust deed users as well as trust deed experts from across the trust deed industry. You’ll be able to seek advice and read up on all the trust deed information you require. The site even has a dedicated phone line on which you can speak to qualified trust deed advisers. Call 0800 043 7201 today to have your personal trust deed questions answers, confidentially and professionally.

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Wylie & Bisset Grant Thornton

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