The concept of insurance is not new to  any of us. We insure our homes, cars  and other valuable assets against  accidents, loss or damage. In light of  this, it is surprising that many of us fail  to put in place adequate protection for  ourselves and our loved ones should  the unexpected happen. Protecting  yourself and your family from the  financial implications of illness,  accident or death is something we  should all consider.

The decision not to insure against  various risks is alarming given that  every two minutes someone in the UK  is diagnosed with cancer, one in  twenty nine children lose a parent  before leaving education, and one in  five people will be out of work for three  months or more. Ask yourself: ‘how  would my family cope financially if I or  my partner could no longer contribute  to the household income?’. Whilst the  UK has a welfare system which  provides a ‘safety net’, the level of  financial support provided by the state  is often overestimated. Indeed, the  more affluent you are, the greater the  potential fall in your income as a result  of being unable to work. 

With this in mind, insurance  companies have developed protection  contracts designed to cushion you  and your family against the impact of  unexpected circumstances such as  sickness, accident or death. There are  a wide range of products available,  each serving a different purpose. Two  key product areas of protection  planning are: 

Life Assurance Policies

There are many variations of Life Assurance available, however, the  majority provide a cash sum payment  to your dependants upon your death.  In addition to providing financial  stability, policies can also often be  used as part of Inheritance Tax  planning to cover any potential liability  that may arise upon your own or your  partner’s death. 

Income Protection Policies

Income Protection policies provide you  with a regular tax free income in the  event that you are unable to work due  to sickness or accident. These policies  tend not to pay out in the event of  unemployment. The income provided  to you by a policy of this nature is  based upon a percentage of your  earnings, usually between 50% to  70% of your gross pay. The payments  provided do not, however, suffer tax.  The policies can be established to take  into account the level of cover  provided by your employer, if any.

A sensible starting point for the review  of your protection needs is to draw up  a list of the cover you currently have in  place and engage a financial adviser in  reviewing these policies. This will allow  the adviser to determine whether your  protection arrangements adequately  meet your requirements. Remember: 

  • Check any protection arrangements that are provided to you by your  employer. Your employment  contract, handbook or personnel  department will detail the benefits  that you are entitled to.
  • Check whether you have an insurance policy linked with your  mortgage or other debts which  covers you for death, accident,  sickness or unemployment.
  • Consider what savings you have which could be used instead of  insurance. Whilst savings provide  a welcome safety net, you should  think very carefully about whether  you want to rely on savings alone.  The use of savings may mean that  any other short term liability which  might arise cannot be met  effectively.
  • Think about any additional expenditure that might arise if you  or your partner were to fall ill or to  pass away. Having sufficient cover  in place to repay the mortgage  can be a good first step, however,  additional costs that may arise,  such as for extra childcare, are  often overlooked. 

Once you have sought advice and  established your protection  arrangements, it is important to review  your protection requirements regularly,  particularly if your personal or  professional circumstances should  change. Revisiting your protection  provisions will provide you with peace  of mind that you and your family  continue to be financially secure for  whatever the future may bring.