Did you know that people are twice as likely to insure a pet than they are to take out protection for themselves? It’s a decision that could leave some people financially vulnerable.
According to a study, over a third of UK employees said they have, or would take out, pet insurance. It’s a step that can reduce the chance of unexpected pet bills by paying regular premiums instead. Yet just 17% would take steps to protect themselves through purchasing Income Protection.
It’s a similar picture with other types of insurance. You probably took out contents insurance without a second thought, it’s something that can offer you peace of mind. Yet, did you also consider purchasing critical illness cover or life insurance? Whilst personal protection is often an afterthought or promoted by an event, it can improve your financial security and confidence in the future.
Our apathy for insurance policies that focus on ourselves is often down to us thinking ‘it will never happen to me’. But the truth is that over your lifetime, an accident or illness is likely to have an impact. Take the three illnesses that all critical illness policies must cover:
- Cancer: Every two minutes someone in the UK is diagnosed with cancer and it’s estimated that 50% of people will be diagnosed with cancer during their lifetime.
- Heart attack: Heart and circulatory diseases cause more than a quarter of all deaths in the UK and there is a hospital admission due to a heart attack every five minutes in the UK.
- Stroke: Strokes are the fourth single leading cause of death in the UK and someone experiences a stroke every five minutes.
Despite the startling figures, more than eight in ten (81%) of UK homeowners don’t have any form of income protection in place.
How does financial protection work?
Under certain conditions, a financial protection product will either pay out a lump sum or start making ongoing payments. If you’re unable to work for an extended period of time, it can help plug the gap between your income and outgoings.
How and when a policy will pay out will depend on the type you opt for and the terms. Broadly speaking, there are three main types of financial protection policy:
1. Income protection: This type of policy will pay out when you’re unable to work due to an accident or illness following a deferred period. It will pay out a portion of your usual salary, say 70%, on a regular basis until the policy term finishes, you return to work or retire. The ongoing payments can help you keep up with financial commitments even if your usual wage isn’t coming in.
2. Critical illness: Thousands of people are diagnosed with a critical illness every year. It’s a diagnosis that can take some time to get your head around and it may change your plans significantly. Critical illness cover will pay out a lump sum on the diagnosis of certain illnesses noted in the policy. It can help give you some time to come to terms with the diagnosis if you’re unable to work, or make adaptations.
3. Life insurance: A life insurance policy can give you peace of mind that, should something happen to you, your loved ones will be financially secure. It pays out a lump sum on your death. Dying isn’t something anyone wants to think about, but taking out the right policy for your circumstances could help your family pay off the mortgage or maintain school fees during a time when they are grieving.
All financial protection policies will require you to make premium payments. How much these are will depend on the provider, you and your lifestyle. You should shop around before purchasing a product and be sure to check what it will cover before taking it out.
How does financial protection fit into your financial plan?
Protection products shouldn’t be looked at in isolation, but rather an important part of the bigger picture.
When you’re creating a financial plan, one of the things you should be doing is asking ‘what if?’ No one wants to think about what will happen if they become too ill to work or are involved in an accident that takes months to recover from. However, it’s a step that can help you understand how resilient your finances are.
Financial protection should fit into your plan alongside an emergency fund and the benefits your employer may offer. These can offer you a safety net when it’s needed most, keeping you on track to secure your goals.
As you ask what would happen if I were unable to work for six months, you may find a gap in your finances. Even a relatively small break in earning an income could set your goals back more than expected. Choosing the appropriate protection product for you can help fill those gaps and provide a sense of security.
To discuss your financial protection needs, please contact us.