Protection: Why Do I Need It?

Like most people, as a healthy working person with a reliable and regular income you may feel comfortable that you are able to provide for your family. However, your finances may be more precarious than you think. We all know someone who has battled with a serious illness, or someone who has died at a young age, scarily even more so now as it’s been widely reported that one in two people born after 1960 in the UK will be diagnosed with some sort of cancer during their lifetime.

Because of this, financial planners will always emphasise the importance of protecting your family with insurance before beginning to think growing your wealth with investments, especially if you have loved ones who are financially dependent on your income.

Without protection, losing the main breadwinner’s income can have a devastating impact on the whole family, financially and emotionally. Whilst having insurance in place won’t prevent you from falling ill, it will certainly protect your income and family’s lifestyle without the added stress of worrying about finances at a turbulent time, where the primary focus should only be to recover and get better.

Despite this, out of 26.7 million households in the UK, only 3.2 million had some form of protection to cover their mortgage debt should they fall ill or die, whilst at least 20.4 million had contents insurance to protect their belongings. Surprising numbers, that as a nation we would rather protect our belongings and possessions, rather than ourselves and the ones we love.

No matter what stage you’re at in life, there is always a need for some form of protection. Depending on your needs and priorities, there is a range of different insurances available to you that will help give you peace of mind knowing your income, or your family, are taken care of should the worst happen.

Income Protection

One of the most commonly misunderstood insurance policies on the market, but often the most beneficial to households, is what’s called an Income Protection (IP) policy. Not to be confused with the widely mis-sold payment protection insurance (PPI), income protection is designed to replace your monthly income if you’re unable to work due to accident or illness. The policy pays a monthly tax-free sum to you, and will continue to pay out monthly until you’re able to return or until you retire.

Why is it needed? Well most employers will offer some form of discretionary sick pay as part of your contract, for example 2 months off on full pay. For those without employee benefits or if you’re off work for longer than what your employer is offering, many people will look to the government for support. You are entitled to Statutory Sick Pay for up to 28 weeks at £89.35 per week. 
However, for most this very little amount is barely enough to cover their monthly mortgage payments. Furthermore, what happens if your still sick after this additional support ends? According to research by Aviva, the average length of claim on their income protection policies was a staggering 3 years and 16 weeks – would your employer continue to pay your salary for this long? 

Whilst other protection policies are designed to pay out lump sums to clear off large debts, such as a mortgage, most people fail to think about the ongoing costs of losing your income and how everyday expenditure is going to be met. Bills, utilities, food shopping and travel costs sadly don’t stop when you become sick, and if anything, are more likely to increase as you spend more time in the house than at work. Income protection is unfortunately often overlooked by many, but it can provide an invaluable solution to most individuals and households in times of need.

This type of policy is of course beneficial to everyone who relies on regular income to survive, but is usually viewed as more of a priority for those who are single or have no children who would consider income protection before other policies, such as critical illness and life cover.

Critical Illness Cover

Critical illness cover pays out a lump sum on diagnosis of a range of specified serious illnesses, which normally includes strokes, heart attacks and certain types of cancers. Most people will use the lump sum to clear off their mortgage or any other large debts they may have, in order to reduce household outgoings whilst they are undergoing treatment. The money might also be used to make necessary adaptions to the house, if for example a loss of limb has been suffered, or changes to the household car, long term care etc., to make life easier for the individual.

So why have critical illness cover alongside a life insurance policy? Statistically, according to the Association of British Insures (ABI), we are five times more likely to claim on a critical illness policy than a life insurance policy before the age of 65. As we develop better technology, advancements in medicine have allowed for longer survival periods and lower mortality rates, meaning we are living for much longer than before.

According to Cancer Research UK, cancer survival has doubled in the last 40 years, and now half of all people will survive cancer for 10 or more years after diagnosis. Critical illness insurance allows during this survival time to ensure you can continue to afford your lifestyle and remain in your home, especially if you have to take a step back from your previous job and take a lesser paid role due to your health abilities.

This type of policy is suited to everyone who may have large outgoings or debt, regardless whether they have a family or not. Whatever your situation, it’s always a good idea to protect yourself from being unable to make payments on your mortgage or rent, or run the risk of losing the roof over your head while you’re in a crucial time of treatment or recovery.

Life Insurance

For those with a partner or children, taking out life insurance should certainly be strongly considered. In the event of the worst happening, life insurance pays out a lump sum on death of the policyholder. This sum is often used to pay off the mortgage debt to ensure that family home can be kept, and preferably also acts as a further financial cushion at such a difficult time.

Many people will receive additional benefits from their employer, such as a death in service benefit, typically a sum of 3 or 4 times their annual salary. It’s always worthwhile checking with your employer to find out what your entitled to.

Life insurance is not just for paying off mortgage debt, often being insured for an additional amount can allow for funeral expenses to be taken care of, and even leaving a solid inheritance for your children’s future. Those who are single and have no dependents, getting life insurance could be considered to ensure there is no outstanding debt left for your next of kin to deal with. Although death is never a pleasant topic to discuss, forward planning is key to avoid financial disaster for those left.

At Tru Wealth, we know protection can be a difficult and complex area to think about. Our advisers are fully qualified to help you identify what kind of cover you may need and will guide you through the different options available. We offer advice on a range of different insurances and will take care of all the application paperwork for you, making it as easy and stress-free for you as possible.

Get in touch with us today on info@truwealth.co.uk, or by calling us on 0141 212 3983. Visit our website for more information on financial planning at www.truwealth.co.uk

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