In the UK everyone is obsessed with property whether that’s concentrating on purchasing your first home or moving house. Home ownership is getting harder and harder and therefore the spotlight is firmly on the housing market. As a result, protection insurance has unfortunately become an afterthought for some home buyers who are not aware of the benefits and the significance of not having protection in place if the unthinkable happened.
There is a consensus among some that they don’t need to protect their income, that there are other ways to make ends meet if they were to become sick or injured and could not work. Most people don’t consider that their biggest asset is likely their own ability to earn an income. Our aim here is to increase awareness and to make you think about these options now and be proactive in protecting yourself against any potential problems you may face in life.
What is Protection Insurance?
There are many types of protection insurance but in this article we will be concentrating on:
- Life Insurance
- Critical Illness Cover
- Income Protection
We will be providing a brief overlay of what these three options cover, but the main aim of this article is to discuss why protection should be something to consider and not be an afterthought.
Generally speaking, life insurance’s main aim is to cover your mortgage in the event of death. The policy will run for the same amount of time as your mortgage and will make sure the mortgage is paid off if you were to pass away. The amount you pay per month is specific to your circumstances and cover amount required.
Critical Illness Cover will provide you with a lump sum if you were diagnosed with a critical or terminal illness. This lump sum is tax free and can be used in whatever way you like, including paying for general expenditure or helping to pay towards a treatment.
Income protection insurance pays you a regular income if you can’t work because of sickness, injury or disability and continues until you return to paid work or you retire. Generally speaking, the monthly payment is lower (around 60%) of your full monthly wage. The main benefit here is it will continue till retirement, or you can return to work so you have the peace of mind you know you will be receiving a certain income.
All three of the above protection insurances have their pros and cons, what’s right for one person won’t necessarily be right for somebody else. Unfortunately, there are many people that aren’t protected in the UK or are lacking sufficient cover. The reason for this is partly due to a lack of awareness about what cover is available, a feeling of negativity against potential pay-outs, cost of living and people believing they would be able to get by without cover in place.
Insurers Don’t Pay Out
One of the main reasons clients decide they do not want to go ahead with protection insurance is they believe if they were to claim the insurance would not pay out. In fact, over the last 3 years the accepted claims have been incredibly high. 2021 – 98% 2020 – 98% 2019 – 98%. Protection insurance can give you peace of mind if you were to get ill, that your bills would be paid. The fact pay outs are so high is a huge positive.
Protection is Expensive
The cost of Protection insurance is set by your individual circumstances, including age, health, etc. There are different levels of cover which can be matched to your specific budget. Generally speaking, the sooner you get protection the less your monthly premiums will be. As you get older, delaying taking out cover could mean you end up paying more in total for protection over the lifetime of the policy. The earlier you take out cover, the more likely you are to pay a lower monthly premium, but you’ll also be covered for longer. The cost of cover does of course depend on your individual circumstances, but it can be relatively cheap. You may be pleasantly surprised how little you need to pay to put some cover in place. When you compare the cost to other monthly costs such as tv subscription you can appreciate the benefits and security you obtain from the insurance.
If I was Sick the Government Would Help
The government does have some benefits in place designed to assist people if they do become sick, however for a lot of people this either won’t be enough or won’t continue for long enough.
The state will currently give you £99.35 a week for up to 28 weeks if you can’t work due to ill health.
But not everyone is eligible for Statutory Sick Pay – it’s only available for people who are employed, and Tax and National Insurance are still deducted from your payments. For full details on the state benefits available to you, go to www.gov.uk.
On average, UK households spend £588 per week (£2,548 a month) to cover living expenses, with this likely to go up with inflation. So, it is unlikely statutory sick pay would be able to support you long term.
Some people believe they will be able to rely upon their savings, but when you take the figures mentioned above into account, could savings really support you long term and how quickly would these diminish?
My Employee Benefits Will be Enough
When you start a job do you look at the employee benefits you get if you were to die, be sick or injured? I know I certainly did not when I first started applying for a job at 17. Employee benefits can be very helpful and ease the burden some face. There are differing packages depending on what your employer has arranged, and it is certainly worth finding out.
What you may find is the employee benefits would cover you partially but decide they do not cover you sufficiently if you were to die, become ill or suffer injury. Some employers may provide life cover as an occupational benefit. However, even if this applies to you, it could still be a good idea to consider whether it meets your personal protection needs. Or perhaps the sick pay they offer ends after a certain amount of time. Protection benefits can be tailored in line with your current employee benefits so once they stop the protection insurance can kick in.
I Will Cut Down my Spending
If your income stopped due to illness or injury, what would you cut down on? Spending on daily coffee, socialising, eating out, buying clothes, and going to the gym could save some money, but would it be enough?
In reality most people want to make their life as comfortable as possible and having to cut back on things whilst also being out of work will add further stress. When you appreciate what your current buying power is, you can start to think if you can cut down and whether you would want to?
If this is an option you are considering then make sure you prepare now and think carefully about what you could realistically cut down. As we have stated already what’s right for one person will not be right for others. If you believe you can make things work this way, then that is great, but you should always keep in mind the growing cost of living and keep up to date with your plan.
The big question is, Can you actually afford not to protect your income?
Time to Assess Your Options
When it comes to protection insurance everyone’s needs and circumstances are different. I would advise assessing your current situation against the points raised and asking yourself:
- How much could having a protection plan in place help?
- What impact would this have on you?
- Do you have a budget for Protection Insurance?