Insurance & Protection
What is Protection?
Protection is the term we use for Life insurance that is set up to provide a financial safety net for family or business partners.
Protection insurance is designed to cushion you, your family or your business partners against the impact of unexpected, and potentially costly, events, including illness, accident, unemployment and death.
There is a wide range of products available, each serving a different purpose, from private medical cover to life insurance, income protection to critical illness cover.
Do I need protection insurance?
We all have financial responsibilities and liabilities. In the event that we suffer an event that means we are financially at risk. A protection policy will ensure that the financial ramifications of that event are negated or reduced or delayed.
The worst that can happen is that we could die. In that event, the financial aspects of life are left to our spouse and family to deal with. In the event that there is no financial protection in place, the ramifications of having no mortgage cover and no money to replace the income that was being earned prior to death could be dire.
If you were off work for any length of time because of an accident or sickness, or if you were made redundant, there are still bills you’d need to pay, such as your rent or mortgage, gas, electricity and food.
Ideally we’d each have an emergency savings pot to see us through – a rainy day fund of six to nine months’ expenditure in an easily-accessible savings account. However, that’s just not practical for many of us. And while it may give you breathing space if you fall ill, it won’t cover you or your family for long periods off work.
You should also bear in mind that the state benefit safety net increasingly won’t pay you enough to maintain your current lifestyle.
Which protection insurance product do I need?
There is a wide range of protection insurance policies on offer, all of which protect you against different events, and with widely varying cover levels. For most people, one single protection product probably isn’t enough. For example, while life insurance will pay out if you die, it won’t cover you for long-term illness or unemployment.
Think first about what you want to protect. The next step is to investigate what cover you already have, including state benefits. Many employers will offer life insurance, either directly or through your pension scheme, so you might find you’re already covered. Many also offer employees health insurance and income protection cover.
We will be able to assess all your protection needs, help you prioritise them and get you the best deal.
Types of Protection Policy
Income Protection
In the event that you are off work for a long time, you will suffer financially and could lose your home, spend all your savings and potentially become dependent on the state, at a very low level of lifestyle. income protection is an insurance which pays a level of income decided at the outset, if you are unable to work due to sickness or accident. Long-term income protection pays out until retirement, death or return to work whilst short-term income protection pays out for a set period, usually between one and five years.
The payout is usually then based on a percentage of your salary or earnings. Payments are tax-free and fall between 50% and 70% of earnings.
Insurance normally starts to pay after a deferment period, which ranges from one month to 2 years after you put in a claim. The longer the deferral period you choose, the lower the premium will be. Therefore if your employer pays your salary for six months when you become ill then you will need to insure your income with a six-month deferral period.
Life Insurance
Life insurance is a fairly straightforward type of protection insurance. Basically it pays out in the event your death. The two main types are term assurance and whole of life insurance. The term assurance policy will pay out in the event that you die within a set period for example 10 years whereas a whole of life policy will pay out when you die, regardless of when that is.
There are many reasons to take out life insurance. The main reason clients normally start a life protection policy is to cover a debt such as mortgage but also family protection, providing a lump sum to cover the loss of your earnings for the family is also one of the main reasons for life insurance.
Other reasons for life insurance are to protect your business or the value of your ownership in a business, or to pay a sum of money to enable your heirs to pay inheritance tax on your estate.
Critical Illness Cover
This type of insurance pays out a lump sum if you are diagnosed with one of a list of critical illness such as cancer, heart attack, stroke multiple sclerosis or loss of limbs. Policies vary as to the costs. As you are more likely to be ill then you are to die, especially in the short term, this type of insurance is more expensive than life insurance.
Very often these policies are used in conjunction with life insurance to ensure that any debts can be repaid or family protection is put in place in the event of critical illness. Life insurance, when bought in conjunction with a critical illness policy can pay out as a separate event or as an integral part of the critical illness policy. Therefore, if you are unfortunate to suffer from a critical illness you will receive the full lump sum but that will be the end of the policy, unless you specify a separate life insurance policy so that you have two pay outs.
Medical Insurance
Private medical insurance pays for private treatment if you fall ill.
Standard PMI policies cover essential treatments, including surgery, consultations, nursing and hospital care.
Comprehensive PMI policies offer additional benefits, ranging from complementary medicine to new cancer drugs and treatments unavailable on the NHS.
There are two types of plan, known as fully underwritten and moratorium. Fully underwritten policies require you to disclose your full medical history to establish what will and won’t be covered. Moratoriums simply impose blanket exclusions on pre-existing conditions going back a set number of years.
Moratoriums are usually cheaper, but watch out – any disorder that subsequently surfaces won’t be covered if an examination shows it arose during the moratorium period.
Is it necessary?
In the UK, the NHS offers free health care at the point of need, so there’s arguably no need to take out a private health insurance policy. Reasons cited by people opting for private cover include fear of superbugs such as MRSA, hospital cleanliness and a desire to avoid long waiting lists.
PMI allows you to receive fast-track consultations and private treatment for short-term, curable medical problems. You’ll either be treated privately in an NHS hospital or be booked into a private hospital.
PMI is not essential in your list of protection priorities. You should look at Life, Critical Illness and Income Protection before considering PMI.
Many employers offer PMI as an optional benefit to staff. PMI from your employer can offer much better value than buying it yourself. For a start, your employer will often pay the premiums for you, although you’ll have to pay income tax on the value of the benefit.
The other main advantage of employer-provided PMI is something known as ‘free cover’. When you buy a PMI policy yourself, you usually need to go through medical underwriting and pre-existing conditions will be excluded from cover. Many employer-provided schemes will cover you for pre-existing conditions and you won’t have to go through medical screening when you sign up for the cover.
