Key Takeaways

  • Protection insurance can pay you a regular income or lump sum in the event of a critical illness or death
  • Policies can be arranged bespoke so that you can cover decreasing debts until the policy is no longer required
  • Funds paid as a result of a claim can be used however is required
  • Life insurance policies can be used to pay for funeral expenses or inheritance tax liabilities

What is Protection Insurance?

Protection insurance is the collective name for a group of insurance products that provide cover in the form of a lump sum or regular income in the event of death, critical illness, or loss of earnings through accident or illness. The main policies are Critical illness Cover, life insurance, and income protection.

A loss of earnings could have a large impact on finances and lifestyle. Protection insurance gives you the peace of mind that you can continue to pay your bills should an event occur. 

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?

Protection insurance plans are beneficial to people who want to protect themselves against any impact on their finances and family that a serious illness could cause.

The money can be paid as a lump sum or regular payment, to replace income, depending on which policy type you have.

In the event of a successful claim, the funds can be used as you wish. That would normally involve settling debts, such as mortgages, or obtaining medical care that could be required.

What are the Types of Protection Insurance?

There are three main types of Protection insurance. They each payout in a different way based on differing circumstances. 

Critical Illness Cover

Critical illness cover is a type of protection insurance that pays a lump sum if you contract a critical illness.

Illnesses such as a Cancer, heart attack, or stroke are covered, although this can depend on which type and the severity diagnosed.

The funds which are paid can be used to clear debts, help with the costs of medical treatments, or generally help with the cost of living.

Critical illness cover differs from income protection as it is paid in a lump sum specifically on a diagnosis of the illnesses covered. Income protection is used to replace income. It is paid monthly, based on circumstances that prevent you from working.

Income Protection

Income Protection cover protects you if you are unable to work. This could be due to illness, disability, or injury. It pays a regular income and continues until you are able to return to work.

The funds you receive from a claim could be used as you wish. Normally, funds are used for bills and the cost of living. Income protection can be used to bridge the gap between what sick pay you are entitled to (either from the government or your employer) and the income you need to pay your bills.

Income protection is recommended for most self-employed people to give them a level of sick pay that would likely be missing as a result of being self-employed and not receiving employer benefits.

The amount of Income protection cover you require should be calculated as a high enough percentage of your income for you to be able to continue supporting yourself and your family. Generally, that is 60% of your income.

Whole of Life Insurance

Whole of Life insurance, also known as Life Assurance, is an insurance policy that guarantees a payout upon death.

Whole of Life insurance is a unique insurance product differing from standard life insurance (Term life insurance). Term life insurance normally ceases to exist at a certain age, or after a set period, whereas Whole of Life insurance does not - it is a guarantee to be paid upon death.

The money forms part of the estate at death and can be liable for inheritance tax. For this reason, it is advisable to place the policy in Trust.

The funds can be used however is required. This is generally for funeral expenses, inheritance tax or to settle debts.

Level Term Life Insurance

Level Term life insurance provides cover for a fixed amount, over a fixed period. It pays out upon the death of the policyholder. Once the fixed period has passed, the policy is matured with no benefits paid.

Similar to Critical Illness cover, the funds paid by a Term Life insurance policy could be used to pay debts and help your family financially if you pass away. 

As this is a set benefit amount, the payout amount does not increase with inflation. Level Term life insurance policies that are not written in Trust will form part of your estate which means it could be liable for inheritance tax.

Decreasing term life insurance and policies that include critical illness cover are available. 

Decreasing Term Insurance

A decreasing policy is where the premium payments remain fixed, but the benefit amount reduces. It is normally in line with a debt being repaid, such as a Mortgage.

A decreasing policy is generally cheaper than insuring for a fixed amount. This is because, over time, the amount you are insured for is becoming less.

Protection Insurance Advice

Protection insurance advice is crucial for individuals seeking to secure their financial future and protect their loved ones. It's important to assess your specific needs and circumstances to determine the right coverage.

Understand the different types of protection insurance available, such as life insurance, income protection, and critical illness cover, and carefully review policy terms to ensure you're fully aware of what is covered. Consider factors like income replacement, outstanding debts, and future expenses to determine the appropriate coverage amount.

Seeking professional advice from insurance experts or financial advisors can provide valuable guidance tailored to your situation. Regularly reviewing your policies and incorporating protection insurance into your long-term financial planning will help ensure ongoing adequacy and peace of mind.

Is Protection Insurance Worth It?

Imagine a safety net that catches you if you fall – that's what income protection can be. It's the peace of mind knowing that if something unexpected happens and you can't work, you won't have to worry about your finances. You can focus on recovery and taking care of your loved ones without the added stress of financial hardship. So, is it worth it? For many, the answer is a resounding "yes."

Each protection insurance type is designed with benefits to protect and cover different circumstances. You will need to understand how the policies can differ and what cover you are looking for. At the point of realising you have a need for protection, it is always a good idea to seek advice. It's important to know that you are going to be fully covered whilst not overpaying and include all the possible illnesses that you are wanting to be covered for.

There are three main options, income protection insurance, critical illness insurance, and life insurance. Income protection would cover you if you are unable to work due to an illness or accident. The cover you have with income protection is specific to your job. For example, if you are a Pianist and you break your hand, that would potentially prevent you from working. Income protection would cover you for this. Critical illness cover normally covers three main illnesses at a base level, these are cancers, heart attacks, and strokes. However, each policy provides cover for different types of these illnesses, and at varying stages. It's important to understand this when choosing a policy. Finally, life insurance pays out upon death. This is normally used to pay for funeral bills. In most critical illness policies, if death occurs during the coverage period, this would also warrant a claim.

No, the key difference between these policies is that payment protection insurance would only pay a benefit amount to pay the loan or mortgage it was taken to cover. Whereas, funds paid in a claim on an income protection policy can be used to cover any bills or for any purpose. Income protection covers the person insured. Payment protection covers the loan repayments.

You can buy your insurance directly through a provider. We recommend you seek advice due to the complexities of the products. Advice is bespoke, suited towards your needs alongside a recommendation.



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