Most people in the UK do not have any type of financial protection. While there may be a good reason for some, in others it’s a decision that’s sparked by myths. It could mean you’re missing out on financial protection that could provide financial security when you need it most.
According to the Financial Conduct Authority, less than half (47%) of UK adults have taken out any kind of financial protection. The most popular type of financial protection is life insurance, used by 31% of people. However, uptake of other types of financial protection suggests some families could face difficulties if the unexpected happened. Just 14% of people have critical illness cover and 6% have taken out income protection insurance.
Not all financial protection products will be appropriate for you, but it’s important to consider if they could provide you with a safety net when you need it. If these five myths have stopped you from reviewing financial protection policies, it’s worth taking another look.
1. “Insurance policies don’t pay out”
A common misconception is that insurance providers will do anything to get out of paying. However, the majority of claims do pay out. In fact, in 2020, 98% of all claims were paid in full, figures from the Association of British Insurers show.
Over the year, £6.2 billion was paid out in life insurance alone. That’s the equivalent of £17 million every day. This is money that helped financially support grieving families. On average, income protection policies paid out £22,000, providing an ongoing income when the policyholder was unable to work due to an accident or illness.
Non-disclosure was the biggest reason for policies not paying out in 2020. It’s important you’re truthful when taking out any type of financial protection. Failing to disclose things like pre-existing medical conditions or whether you’re a smoker could invalidate your policy.
2. “I don’t need insurance”
If your income stopped because you were unable to work, how long would your savings last? If you don’t have a safety net that could provide for you long term, financial protection can be valuable.
People often think they don’t need financial protection if they have no dependents or a mortgage. However, it can still provide a valuable income or lump sum to cover things like your rent, utility bills or ensure you could maintain your lifestyle if something happened.
Some people also overlook taking out financial protection if they’re not the main income earner within the household, but illness could still have a huge impact on you and your family. If a stay-at-home parent became ill, for instance, the other parent may need to take time off work or childcare costs could rise significantly.
3. “It’s too expensive”
The cost of financial protection does vary, but often it’s cheaper than you might think. The cost of the premiums will depend on two key factors.
First, the level of cover you want. The more cover you’d like, the higher your premiums will be. Other choices you make can also have an impact. For example, if you choose to have a longer deferment period when taking out an income protection policy, your premiums will be lower.
Second, your health and lifestyle will have an impact. As you get older or if you have any existing health conditions, premiums will rise. Lifestyle choices like smoking can also affect the premiums. However, that doesn’t mean the cost of insurance will be expensive, getting some quotes can help you understand how much protection will cost.
4. “I can’t take out insurance because I have health issues”
Pre-existing health issues don’t mean you can’t take out financial protection. However, it can be difficult to find the right policy for you.
Existing health issues may mean your premiums are higher or that exclusions apply, but this isn’t always the case. If you could benefit from financial protection, it’s worth getting some quotes. There are also specialist providers for those with pre-existing medical conditions. We can help you understand what type of cover is right for you and find a policy that suits your needs.
5. “The cover my employer provides is enough”
In some cases, this may be true. However, it’s always important to understand the cover you have and regularly review it as your situation may have changed.
While your employer may offer a comprehensive sick policy that provides security for a year, what would happen if you had to give up work long term? Or your company may offer a death in service benefit, but the sum would not be enough to cover your mortgage or provide your family with financial security. In some cases, additional cover can supplement what your employer offers.
If you have financial protection, including those provided by your employer, you should consider how they’ll fit together. For instance, if you receive sick pay from your employer, you may choose to have a longer deferment period on an income protection policy, which would reduce your premiums.
Please get in touch to discuss how financial protection products could create security for you.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Richard Fyfe is a Chartered Financial Planner and a Director of Fyfe Financial.