Is Protection Insurance Worth it?

Is protection insurance worth it? In this insight, we delve into the importance of protection insurance and highlight key considerations to help you make informed decisions. Protection insurance policies serve as a safeguard against unforeseen events that could have a significant financial impact. When faced with challenging situations that may disrupt your goals, you'll appreciate the value of having paid for insurance. Such policies are designed to cover expenses, maintain your lifestyle, and clear debts in the event of a sudden loss of income due to illness.

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Key Takeaways

• Protection insurance minimises financial impact during unforeseen events.
• You will need to assess your personal circumstances to determine your insurance needs.
• Consider additional protection if you're self-employed or without employer benefits.
• Seek professional advice for personalised cover.

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Is Protection Insurance Worth It?

Nobody wants to be paying for insurance. Although, if you do end up in a situation you wish you weren't in and If your goals could be impacted, you're going to wish you had been paying for it. Protection insurance policies are normally used to maintain bills, maintain lifestyle, or clear debts if a sudden loss of income came about, due to illness.

Looking For Protection Insurance Advice?

If you're thinking about your protection insurance options and find it overwhelming, it's a good idea to seek advice.

We can help you find a protection specialist to offer you the very best advice. Complete our Sunny Fact Find form to provide us a bit more detail about your circumstances and we'll find the best-suited adviser for your needs.

Your appointed adviser will contact you to discuss how they can help, you decide how to proceed.

Why is protection insurance important?

They exist to reduce the financial impact or damages that would occur through a certain event happening.

If you are undecided on whether protection insurance is right for you, you need to think about your personal circumstances and what life might look like if an unexpected illness did occur.

If your income was to stop tomorrow:

• What would you need to give up?
• How would it impact your goals?
• How would that impact your family?
• What would your family need to give up?
• How would this make you feel?

Some employers will have you covered in their standard benefits package, but not all will. More often you may need to pay further to give yourself the right level of cover. With these employer benefits policies, do you know if you are underinsured or have a shortfall?

What if you are self-employed or have no employer benefits?

If you're too ill to work, Statutory Sick Pay (SSP) pays only a modest fixed amount each week, and for a limited period. For most people it falls well short of their normal earnings. What happens if that doesn't cover your bills? You're on your own.

If you haven't made plans to protect yourself further, that is the only income support you will be entitled to. That could mean you begin to miss payments and fall into arrears, the other option is you use your savings. It probably would not be the desired use you expected for them.

What are your protection options?

Income protection

A recurring income paid to you until you return back to work. This is normally used to top up SSP. Income protection could be claimed if you are unable to work due to many different reasons. It doesn’t necessarily have to be that you are suffering a critical illness that stops you from working. For example, if you have an accident, even at home, such as chopping your finger off cutting vegetables for dinner. If this stops you from doing your job, you would be eligible for a claim. One thing to check carefully is exactly what is covered — for instance, whether income protection covers redundancy as well as illness and injury.

Critical illness with life insurance

This is usually a lump sum paid upon diagnosis of a critical illness, such as a Heart attack, Cancer, or Stroke. It is taken with the intention of clearing debts, usually a mortgage, or to pay for health care. This is a chance to pay a premium to know that you could clear any debts hanging over you, and focus on recovery.

Having either of these policies would provide peace of mind that you and your family will be ok financially should anything happen. Cover can often be extended to the whole family, too — see our guide to children's critical illness cover. And if you have a pre-existing condition, cover is often still available; our piece on type 1 diabetes and life insurance is a good example.

Why is obtaining Protection advice important?

There are many daytime TV adverts with offers for protection insurance from as little as £9.99 a month if you are a non-smoker under 30. The devil is in the detail. It may sound appealing, but actually, this policy may not be what you think it is.

There are many flexible policies out there, if you focus solely on price you will likely find yourself underinsured. Sometimes these policies have deferral dates - they don’t kick in until after 6 months off work. If your employer covers you with full pay for 1 month, then half for 1, and nothing after. - that’s 4 months without income. What happens then? Can you afford 4 months' worth of mortgage repayments on Statutory Sick Pay? What sort of stress could that put you under? The quality of policies differs greatly, some include referrals to the best doctors, and others include as many as 60 conditions. To be classified as a critical illness policy though, only 3 illnesses need to be included. That’s a big difference in scope for cover.

Advisers are qualified to give a recommendation that is bespoke to you. They will take into account your financial position, your debts, your age, family. All of this together will help them to form a picture of the policies you would need. They can control certain features of your policies that help keep your premiums as low as possible. For example, Decreasing policies where the claim amount reduces, as you pay your mortgage down. Fixed policies if you feel the need to cover a fixed amount, for example, for health care. Accreting policies that rise with inflation. There are lots of complexities to these products that make advice invaluable.

Why Is Protection Insurance Worth It?

1 in 2 people in the UK born after 1960 will be diagnosed with some form of cancer during their lifetime.

There are more than 100,000 strokes in the UK each year causing 38,000 deaths.

as many as 100,000 hospital admissions each year are due to heart attacks; that's 280 admissions each day or 1 every 5 minutes.

If you find yourself having paid protection insurance but never making a claim. This is a win in my book, you have your health. If you have unfortunately needed to make a claim, hopefully, that made things a lot easier for you, allowing you not to worry about bills or what might happen to your family, without your income. Hopefully, it allows you to focus on recovery.

This is a small thought-provoking piece around protection but we barely scraped the surface. If unsure of the details, seeking advice is a good idea. Financial products are never a 'One size fits all'.

This is why advice is invaluable.

Protection Insurance Advice

The honest answer to "is protection insurance worth it?" is that it depends entirely on your circumstances — your income, your debts, your dependants and any cover you already have through work. What matters is having the right amount and type of cover, not simply the cheapest premium. A good adviser will help you weigh up income protection, critical illness and life cover, and can also make sure any pay-outs are structured well, for example by writing life insurance into trust so it reaches your family quickly and free of inheritance tax. If protection is on your mind, speaking to a specialist is a sensible next step.