When it comes to protection insurance, there isn’t one type that suits everyone. The type of protection insurance you need with depend on your personal circumstances, financial goals and what you value most in terms of protection.
As financial advisers, we can guide you through the process and help you understand the options available to you, the cost and help you choose the most suitable policy for your needs.
The Different Types of Protection Insurance
Life Insurance
Life insurance provides financial security to your dependents if you pass away. It can be paid out either as a lump sum or regular payments. This can help your family manage any ongoing expenses such as mortgage payments and living costs etc.
This type of protection insurance is ideal for individuals with dependents – a partner, children or other family members that rely on your income.
If you are single with no dependents then life insurance might not be a priority as it won’t directly benefit you during your lifetime.
Income Protection Insurance
Income Protection provides a regular income if you’re unable to work due to illness or injury. It will typically cover a percentage of your pre-tax income and continue until you can return to work, retire or reach the end of the policy term.
This type of insurance is good for anyone who relies on their income to cover living expenses, particularly those without significant savings or other financial safety nets.
According to the Association of British Insurers (ABI), only 247,000 people in 2023 purchased income protection, despite the fact that more people are likely to be off work from illness than pass away during their working life.
Critical Illness Insurance
This policy pays out a lump sum if you are diagnosed with a critical illness such as cancer, stroke or heart attack. The payout can be used for anything from covering medical expenses to offsetting loss of income or paying off debts.
This type of insurance is good for people who are concerned about the financial impact of serious illnesses, especially if they don’t have savings to cover such scenarios.
Different insurers have specific definitions of covered illnesses, so it is crucial to understand your policy and what it covers. Pre-existing conditions are typically excluded as well.
Why You Should Consider Protection Insurance?
As financial advisers, we always explain the unpredictability of life and how having a financial safety net can provide peace of mind. An emergency savings fun is always advisable, but it may not be enough to cover all eventualities. Protection insurance offers an immediate solution allowing you to safeguard against unforeseen events.
What Coverage Do You Need?
There are a number of things you need to consider when determining your coverage needs.
- Your Financial Situation: If you were to lose your income, how long could you sustain your current lifestyle? Think about your monthly take-home salary, living expenses and outstanding debts such as your mortgage.
- Your Dependents: Who are your dependents? Do you have children, a spouse, or other dependents that rely on your income? Life insurance can provide financial security for them if you are no longer around.
- Check Your Existing Benefits: Some employers offer life insurance or income protection as part of their benefits package. Check what is already available to you as this might reduce the level of additional cover you need.
Factors Affecting The Cost of Protection Insurance
The cost of protection insurance can be affected by the following factors:
- Age – younger individuals usually pay lower premiums.
- Health and Lifestyle – smokers or people with pre-existing health conditions may face higher premiums
- Occupation – high risk jobs can increase premiums
- Policy type and duration – the type of cover, the sum insured, and the length of the policy can all impact the cost.
What Are The Options Available To You?
Balancing the cost of protection insurance against the risk of being uninsured is critical:
- Potential Loss: Think about what might happen financially if you become seriously ill or if your family lost your income.
- Prioritise Needs: If you can’t afford comprehensive cover then maybe start by insuring the most critical aspects like your income or mortgage.
- Review on a regular basis: Life circumstances change on a regular basis so make sure you review your insurance as this will need to evolve with you. Regularly review your policies to ensure they remain appropriate.
Choosing the right protection insurance is personal to you and will be influenced by several factors. While having some cover is better than none, the key is to ensure that your insurance reflects what you value most and offers enough protection where you need it.
If you are unsure about what protection insurance would be best for you then please get in touch and we can help you navigate the complexities of protection insurance and tailor the advice for you.
For more information or to discuss your protection insurance needs, please contact us at info@resolvefs.co.uk or call 01932 943028.
* Protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Sources: Association of British Insurers