Always Use Protection
Written by Ed Cannon
Independent Financial Advisor
There aren’t many things that you would gladly pay for but hope you never use. My gym membership certainly falls into the never use category. Almost everything else you pay for, you would definitely feel cheated if you didn’t use it. Protection, therefore, falls within a class of its own.
There are various different types of protection and you would be forgiven for not knowing exactly what and how much you need. For the purpose of brevity, I am going to concentrate on 3 key aspects:
· Life Cover
· Critical Illness Cover
· Income Protection
There isn’t much room for misinterpretation in those names as they do exactly what they say on the tin (or key features document in finance speak).
Life cover protects you in the event you were to die within the term of the plan. If you do die then a lump sum is paid to your next of kin, or other beneficiaries, to help them with things like outstanding debts or any mortgage you may have. In short, it can be used for a variety of purposes, but is often used to help your beneficiaries with the financial side during a difficult time.
Critical Illness is similar and can even be added to a life cover plan. This will pay out a lump sum if you are diagnosed with a pre-defined critical illness. This is not consistent across the board as different insurers will have a different interpretation of what a critical illness actually is. Either way it is not cover you would want to be without if the worst were to happen.
Income protection is cover that is in place to replace your income should you be unable to work for health reasons. You can cover for your own occupation specifically, which will pay out if you cannot continue your current role, or for any occupation which will pay out if you cannot work in any capacity.
The most common form of protection is simple life cover; usually put in place to cover a mortgage or protect your family financially. The issue, statistically, is that death is the least likely event. That is not to say you shouldn’t have life cover but the you should be far more wary of the other events. Using myself as an example: A 33-year-old male who wants to retire at 65 (35 if I’m being honest and/or fantastical) the chances of any of the three things listed above happening before 65 are:
I would still struggle to pay my mortgage if I was diagnosed with a critical illness or I could not work due to illness and they are magnitudes more likely to happen before age 65. So, it would be sensible for me to have all three methods of protection in place.
There are, of course, affordability concerns with this as the more likely something is to happen the more expensive it is.
If you would like to arrange a conversation around this, I can assess your individual needs and work out a protection plan that is both suitable and affordable. I am always available for a chat and happy to help.