The importance of protection insurance – a real-life story
We could take this opportunity to bullet point all of the overwhelming reasons why every person in the UK should seriously consider arranging protection insurance, but instead let us tell you a story.
A client called to check that he’d written his life insurance in trust. He had – the client went on to share his sad predicament.
“Well, I’ve been diagnosed with stage 4 cancer. It’s terminal, so is there anything else I need to do?”
This 40-year-old husband, dad of two and self-employed business owner had been told by doctors that his life expectancy was about eight months.
Following that call, a claim was made on his life insurance terminal illness benefit. More importantly, because he’d also arranged critical illness cover and income protection, and he’d obviously had to stop working, both of those were claimed on as well.
No amount of insurance cover was going to make it any easier for him or his family. But what those payouts meant was that his remaining few months could be spent focusing on what mattered, without additional financial worries.
He sadly passed away a little over a year later.
Persistent intransigence
That client had put in place a comprehensive financial safety net to protect him and his loved ones, but millions don’t.
It’s one of the challenges people grapple with; not many wake up in the morning and think to themselves “I’m going to buy protection insurance today”.
There’s a whole host of behavioural economics behind why clients underestimate risk. Due to ‘optimism bias’, we think “it won’t happen to me”, or we favour spending money on something that brings more immediate reward, over the longer-term benefit of insurance.
Recent reports have highlighted a considerable lack of understanding when it comes to critical illness cover; the same equally applies to other forms of protection.
All this means that we’re left with a significant protection gap in the UK, with households woefully under-insured and lacking appropriate levels of financial protection.
A wake-up call
The last few years though have undoubtedly been a wake-up call for many.
A pandemic quickly followed by a cost-of-living crisis has highlighted the age of volatility and uncertainty that we live in, as well as the precarious nature of many people’s finances.
According to the FCA’s most recent Financial Lives survey, over 12 million adults in the UK have low financial resilience. In the six months to January 2023, over half of UK adults had either stopped saving, reduced their savings or were having to use savings to meet daily expenses.
Alongside ongoing challenges facing the NHS, these crises have taken a significant toll on the nation’s health and wellbeing. The most recent stats put the number of people now out of work due to long-term sickness at 2.8 million, the highest on record.
We therefore live in a time where, paradoxically, the need for protection has never been greater, but the pressures facing households mean more people are unfortunately deprioritising insurance.
Protection advice is critical
Against this backdrop, getting expert, tailored protection advice plays a vital role. Many people face the risk of serious hardship if they were to experience a financial shock, such as a loss of income due to ill-health or the death of a main household breadwinner. So, it’s a conversation that shouldn’t be shied away from.
If we just consider the client mentioned at the beginning of this article, imagine that all they had in place was decreasing life cover to protect their mortgage. They’d be able to pay that off, but they’d be left with no other financial support.
This highlights it’s essential that we consider the bigger picture, and address our needs with the most suitable and comprehensive cover. For many people, this is likely to be all – or a combination – of Life Cover, Critical Illness Cover and Income Protection.
We can’t predict what’s going to happen, but each of these products can play a vital role in supporting us in a range of scenarios that might arise and ultimately provide more choice and flexibility to claim.
