The need for financial protection
For most people the only contact they have with the protection market is when they buy their first home with a 25-year mortgage, they take out a 25-year life insurance policy to match it.
What is the real reason for this cover though? Most do not think about this. Take myself as an example, as much as I want to ensure that the building society who lent me the mortgage funds are repaid, my real concern is that my family is not faced with the stress of having to move and downsize at a time when they are mourning (well I presume they will be).
As well as paying off the mortgage and keeping the home, what other things are important to you? This list will be different to everybody but with the mortgage paid off how will you or your family fund your existing lifestyle? This is where life insurance can also help. You can have an additional lump sum or monthly benefit (often referred to as a family income benefit). This can also be ‘indexed linked’ to help your cover keep pace with inflation.
So far I have spoken solely about the simplest form of protection – life cover, it does exactly what it says on the tin. It will pay out the amount you are insured for during the term of the policy. Nearly every life insurance policy in the UK also includes terminal illness cover that will also pay out if you are diagnosed with an illness that provides you with a life expectancy of less then 12 months.
The two other main forms of protection are critical illness and income protection.
If you were diagnosed with a critical illness how would you cope? Critical illness polices will pay out on diagnoses of a critical illness and most will include life cover at no additional cost. Although more than 80% of all critical illness claims are made on heart attack, cancer and stroke alone a lot has changed over the past few years with this type of cover and different providers will cover numbers of conditions with different definitions as to what constitutes a critical illness. There is of course a minimum standard definition that all insurance companies must meet, but many now ensure that they exceed these definitions, which in real terms makes it easier to, and more likely to, make a successful claim. The average number of conditions is now around 45, up from 35 just three years ago. Then you have Pru Protect that, with its serious illness cover, cover more than 160 conditions and make many partial payments for conditions that others will not pay. Couple this with its Vitality programme, headed up by Lord Coe, rewards you for a healthy lifestyle with the potential of decreasing your monthly premiums.
The final type of insurance is income protection, how will you cope if you’re unable to work due to illness, will you be able to pay those monthly bills? How long would your employer pay you for? You can protect up to around 60% of your normal earnings, the reason for this is to ensure an appetite to return to work, which there would not be if you could cover your entire salary.
Have a look round you and think about what is important to you. Your family, your home, your possessions, your lifestyle. Could you cope without what you see? Do you have the protection in place to replace them? If not then this is your own protection gap. Contact one of our protection specialists at Dental Insurance Services where we can advise on a plan to protect those things that are important to you and your family.