What is Protection Insurance and why do we need it?

What is Protection Insurance and why do we need it?

November 2020

So, what do you know about Protection Insurance?

Although you might have heard of Life Insurance, the wider world of Protection Insurance includes a number of options that can help protect you and your family from some of the uncertainties that life can throw at us; usually when we least expect them.

Why is Protection Insurance important?

First of all, take some time to consider the things you spend your money on. Maybe it’s your mortgage or rent, it will definitely be on food, TV, birthday presents, meals out, mobile phone and TV and streaming services. 

Now consider what would happen if you were to become seriously ill and were unable to work.

Unless you have substantial savings, it’s likely that even with state benefits; you or your family would have to make significant cutbacks and changes and you may be unable to keep the lifestyle that you are currently accustomed to.

Isn’t it therefore interesting that many people in the UK are happy to insure their pet, car or other belongings against unexpected costs, but are less worried about protecting themselves and their families against the financial impacts of illness, injury or death.

There are three main products that make up protection:

Income Protection

Your outgoings wouldn’t stop if your income did.

Income protection pays a proportion of your income each month if you are unable to work due to illness or injury. This will usually work around your sick pay arrangement with work. The most common claimed for conditions are mental health, musculoskeletal problems and cancer. Income protection is designed to help you maintain your lifestyle while you are unable to work and allow you to focus on your recovery without the need to rush back to work.

Critical Illness Cover

This protection is designed to help support you and your family financially while dealing with diagnosis and treatment – this means you could focus on recovery without worrying about how the bills will be paid.

Critical illness cover can be bought with life insurance, or it can be taken out by itself. It pays out a lump sum if you meet one of the listed definitions, which may pay on diagnosis, when the condition gets to a specified severity or when undergoing named treatments or surgeries.

Some providers will allow you to adapt your critical illness cover, which may include being able to add more conditions at additional cost. Many policies will also cover you for less serious conditions paying out a set amount of money whilst letting you keep your cover in place.

Each provider will have their own definitions that will need to be met for payment of a claim and most will provide some cover for children too.

Life Insurance

Life insurance is there to make sure that if you die, your family have a financial safety net to fall back on. Many people choose to take it out for the length of their mortgage, but others also consider when their children will be financially independent or when they plan on retiring. A lot of life insurance policies will also cover terminal illnesses, which means that if you have a life expectancy of 12 months or less, you may be able to claim the benefit amount before you die.

Are you and your family fully covered?

It’s important that you consider how these three types of cover can work together to help protect you and your loved ones, whether it’s due to you being unable to work, developing a critical illness or passing away. There are several choices that you and your adviser can make together to find the best combination of these for you, taking into account your budget and what matters most to you and your family.

Note: Please be aware that none of these products usually have a cash-in value at any time.

What next?

For more information on the different types of insurance and protection options available...