Life is busy. Which means we rarely give enough consideration to Plan B, because we’re already caught up in Plan A. Yet, we never know what is around the corner and unexpected events like serious illness, accidents or a death in the family can take a huge emotional toll. The financial impacts can be equally stressful.
That’s where insurance and protection come in. Whilst a pay-out certainly cannot make up for the loss of a loved one or other huge life changes, it can take the weight off your shoulders when it comes to finances. Having one less thing to think about does make a difference.
Protection insurance provides a security net in circumstances such as death, illness and loss of income (whether it be due to redundancy, change of job or other matters).
Talking about these scenarios is never pleasant, but necessary if you want to create a plan should any of those events occur.
According to research published last year by the Financial Conduct Authority*, just under half of UK workers (48%) hold any form of protection policy. And even among those who have protection policies in place, understanding of these products is lower than for other types of insurance.
So, if insurance provides financial peace of mind, why aren’t people taking out policies? There is a stigma around insurance and a few common myths that create barriers to a good plan B.
Understandably, there are many people looking to reduce their overheads where possible, especially in the current economic climate. However, protection can be more affordable than you think. And, often a small price to pay for financial peace of mind.
A non-smoking 30 year old arranging £200,000 in life cover over a 25-year term might pay under £10 per month. That’s less than some Netflix subscriptions or a couple of takeaway coffees.
As you get older or if your health deteriorates, you will likely pay more since the chances of a claim are higher, but a good financial planner can ensure you get a competitive price and keep premiums as low as possible.
In 2022, individual policies paid out 287,000 life insurance, income protection and critical illness claims**. So you may be more likely to claim than you think.
You also can’t put a price on financial peace of mind. The reassurance of knowing you and your loved ones have financial security is invaluable.
That said, if you never claim then that’s a good thing as insurance is there to protect you in negative circumstances. In that case, if you are thinking it could be a waste of money, many protection products now include everyday added value benefits from day one. These can include 24/7 GP services, remote physio, health MOT’s, discounted gym memberships, counselling support, and perks like free coffee and cinema tickets.
Life insurance pays out upon death, so your loved ones would be covered for any expenses and loss of income in that circumstance. But what if the unprecedented were to happen before then? Many people are now diagnosed with serious illness or long-term sickness. It’s worth having critical illness or income protection cover to safeguard your income if you are unable to work.
The LV= online risk calculator suggests that a 40 year-old female has 31% chance of being unable to work for two months or more before retirement and a 10% risk of suffering a serious illness. Generally, this risk increases the older we get (before retirement) but critical illness will also pay out if you are diagnosed with a specific condition after retirement, too. You can read more about these types of insurance here.
Your employer may offer insurance policies in your package such as sick pay, life insurance/death in service, and health insurance. However, it is vital to ensure these are adequate to cover your family’s expenses and cost of living if you were to need to claim.
Sick pay for example is typically only payable for a limited period. Death-in-service benefits will be limited to your salary, rather than reflecting your circumstances.
The small print and T&Cs aren't the easiest to get your head around – would your claim be successful? This is where a financial planner can help as they can ensure you have the right level of cover and factor your insurance into a financial plan.
There is also the matter of your cover changing if you left your role, and if you are self-employed you will need to take out your own policy anyway.
Many people assume that insurance companies will find loop holes to jump through to get out of paying a claim. However, the Association of British insurers says that in 2022, 98% of all protection claims resulted in the pay out with policyholders receiving a total of £6.85 billion**.
Whilst it is never wise to worry about things out of our control, many people find comfort in knowing they could cope financially if the unpredictable were to happen. If you are thinking of taking out protection insurance, we have explained more on the different types here and how a financial planner can help you to find cost-effective insurance suited to your personal situation.
*Financial Conduct Authority ‘Financial Lives’ survey, January 2023
** Protection insurers pay out £6.85 billion to support individuals and families
This content is for information purposes and should not be treated as financial advice. We would always recommend speaking to a professional before making decisions regarding your wealth. The value of investments can fall as well as rise and you may not get back the amount originally invested. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. Even a long-term investment approach cannot guarantee a profit.
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