With borrowing at historically high levels it is important for families to consider the way their debt is protected, should the worst happen.

Debt levels are high

High levels of debt are hardly surprising, given current economic conditions – and the fact that there appear to be an increasing number of credit card issuers that are prepared to accept balance transfers with no interest payable for anything up to 16 months (though there may be a one-off transfer charge).

By transferring a credit card balance at no interest, it becomes easier for the borrower to make capital repayments since there is no interest to be paid for some time; if this discipline is followed, it can make considerable sense.

What if something happens to you?

According to Credit Action, at the end of the first half of 2011, the average amount a UK adult owes is more than £29,500; about 23% more than national average earnings. So ensuring that your family is not saddled with debt should anything happen to you is of paramount importance.

There are several aspects to this – health related risks and employment related ones.

Death or incapacity

Death is rather final, but not as far as your borrowings are concerned. These still have to be repaid, whether they are a mortgage, personal loan or credit card debt. Your estate will be expected to make repayment in full, unless borrowings are made jointly with another person, who may thereby end up with higher debts.

Life insurance to cover all outstanding borrowings is absolutely essential, if you do not want to leave your family with a potentially massive bill to meet – and perhaps no income to pay it from. This need not be expensive, especially for younger non-smokers; your independent financial adviser can assess the level of cover you may need and give you an indication of the costs. Cover should not be limited to the amount of your borrowings, but also make provision for your family until they are likely to be financially independent of you.

Long-term injury or illness could also limit your ability to repay borrowings; if you have no income other than Statutory Sick Pay (currently up to a maximum of £81.60 per week, payable for a limited period), you and your family could run into financial problems very quickly. After all, you have to live, as well as repaying debt. Various forms of insurance are available to provide an income in the event of incapacity and this can cover living expenses as well as debt repayments.

Unemployment

In today’s economic climate, redundancy is also an ever-present threat, especially within the public sector. Fortunately, it is possible to arrange insurance to cover your loan repayments – and living expenses, if required – for a limited time (generally up to a maximum of two years). This is normally done in addition to an accident and sickness insurance (called accident, sickness and unemployment insurance) but you should be aware that this cover often excludes the self-employed and those working for family owned and run businesses.

It is important to take professional advice before making any decision relating to your personal finances.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. THE VALUE OF INVESTMENTS IS NOT GUARANTEED AND WILL FLUCTUATE. YOU MAY GET BACK LESS THAN YOU INVEST. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND.