Protection policies provide a vital safety net for you and your family should anything happen to you. You pay for peace of mind that you and your family will be financially secure if one of you passes away or you fall ill.
However, new data reported by FTAdviser shows that only 44% of people have enough life cover to protect their family, and this falls to 26% among couples with children.
The findings also suggest the situation could be even worse for the “squeezed middle” – people aged between 30 and 40 – who are most likely to fall short on protection.
Read on to learn more about the “protection gap” and why it is vital that you check you have adequate cover.
44% of people could not cope financially if they were unable to work
Many people think about life insurance when taking out a protection policy, but this is only part of the picture. That’s because income protection and critical illness cover can be a lifeline if you are unable to work.
If you are aged 30 to 40, you may be more likely to have dependants and most of your mortgage still left to pay off. As such, you may be more vulnerable if you fall ill and cannot work for an extended period.
Indeed, a study from LV found that 44% of adults aged 25 to 44 are not confident they could cope financially if they fell ill. Additionally, 28% of people in that group would struggle to pay bills if they were out of work for just two months.
It is also important to consider that half of people said their partner relies on their income or they need both incomes to cover their outgoings.
That means, without the right protection in place, a death or a serious illness or injury in the family could leave you in financial difficulty.
Unfortunately, as FTAdviser reports, many people in their 30s and 40s lack the cover they need. And the situation is worse for those with children as an estimated 74% of couples don’t have the right level of protection in place.
This means there is a severe protection gap among the squeezed middle that could leave you vulnerable.
The good news is, if you seek advice, you can close that gap and protect your family and your wealth.
The right protection policy prepares you for uncertainty
While you may not think you need life insurance, critical illness cover, or income protection because you are relatively young and healthy, this may not always be the case.
The truth is you can experience hardship for many reasons. Luckily, the right protection policies can save you from a very difficult situation.
A story from one of our advisers, Nick Tattersall, illustrates this perfectly. He recalled:
“Many years ago, I met with some clients who were in their 20s and married with two children. We reviewed their protection needs and they had life cover on the mortgage already, but no critical illness cover. They chose not to add the critical illness cover due to the additional cost.
“I spoke with them in depth about it and explained that the reason it costs more is that the probability of having to claim on it, whilst low, is still higher on critical illness than life cover. That’s because, in essence, there is a bigger chance of one of them suffering a serious illness than passing away in the next 20 years or so.
“After our discussion, the clients decided to revisit their insurance and put both a life and critical illness policy in place.
“Several years later, one of them fell ill with a serious form of cancer, which required surgery and an extended absence from work.
“Thankfully, they made a full recovery, and the new protection policy repaid the mortgage, which means the family are now mortgage free. But perhaps just as importantly, it meant that they didn’t have to worry about keeping a roof over their heads while they navigated this challenging time, and they could take the time needed away from work to fully recover”.
This example demonstrates that anybody can find themselves in need of protection, regardless of age.
And, it also shows that having the right cover in place can save you and your family from serious hardship.
Indeed, a recent story about TV presenter Jonnie Irwin showed what can happen if you decide to skip out on vital cover.
As reported by Money Marketing, he has been very vocal about the need for critical illness cover. When he was diagnosed with terminal cancer, he had no safety net. Without a critical illness payout, he had no option but to continue working while he went through treatment, so his family did not face financial hardship.
That’s why, if you are unsure whether you have enough cover, or what kinds of protection policies you need, it is a good idea to seek advice.
Circumstances when you might need to rely on protection
There are many situations when you may need to rely on protection, and having robust cover in place could help you to remain financially stable. For example:
- Being too ill or injured to work – an income protection policy pays you regular income, usually based on your average earnings, until you are well enough to return to work.
- Getting a critical illness – if you are diagnosed with a qualifying critical illness, critical illness cover could pay a lump sum to cover living expenses and treatment.
- Redundancy – some income protection policies also cover you for redundancy, so you do not have to makes sacrifices to your lifestyle while you find another source of income.
- Death – if you die, your family will receive a lump sum to cover funeral costs, pay off the mortgage, or pay living expenses.
While these are the most common situations when people rely on protection, there are countless ways that life can surprise you. The benefit of protection is that it gives you a buffer against that uncertainty.
Get in touch
If you are worried that your protection policies do not meet your needs, or you don’t have any in place at all, we can help you find adequate cover.
Email hello@fcadvice.co.uk or call 0330 828 4714 today for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Note that 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. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
