Why you should consider financial protection

Just like pensions and savings, protection should form a core part of your financial planning arrangements no matter what stage of life you are at. It plays an essential role in creating a secure future for you and your loved ones.

Protection is a blanket term that encompasses a range of insurance policies that pay out under particular circumstances, like illness, terminal illness or death. It’s not nice for anyone to think about these topics but we can’t escape the reality that we cannot take good health for granted.

Life is unpredictable and there is much that is outside our control, but steps can be taken to prepare for various eventualities.

Which protection products are right for you will depend on your and your family’s circumstances. In this article, our expert team of financial advisers at PIL Southampton looks into this important area of financial planning and answers some frequent questions we are often asked.

Do I need financial protection? 

If any of your loved ones are dependant on your financial contributions to support their lifestyle, then the simple answer is yes. If the worst happens, and you are no longer able to provide that financial support, your family could be left in a very vulnerable and difficult position.

Many people are potentially putting their family’s financial security at risk by not making contingency plans that would kick in if their income stopped or their situation changed. 

According to research carried out by Royal London, only 27% of those asked said that they were confident they had sufficient cover. Over half of the young adults questioned said they had less than three months of a savings buffer if they weren’t able to work and earn money, and yet only 17% said they were likely to buy income protection within the next five years.

Types of financial protection 

Life insurance

This pays out a lump sum in the event of your death, and some policies pay out if you are diagnosed with a terminal illness. Life insurance policies can provide financial relief for your dependants at a very difficult time. If your family’s lifestyle is reliant on your income, you can set the level of cover to meet those financial needs. For example, this might include making sure there is enough money to pay off the mortgage.

The most common type of life insurance policy is ‘decreasing term’ life insurance. The amount the policy pays out reduces over time, in the same way a repayment mortgage goes down. 

Another type of policy is ‘level term’ life insurance, where the sum assured – the payout – remains the same throughout the policy.

In terms of how long your policy lasts, you have two choices; whole of life policies continue until you die, when there will be a guaranteed payout, and a term policy which has a fixed end date, and it pays out if you die during that period. 

There is also what are known as Family Income Benefit policies, these pay out on death but, rather than a paying a lump sum, an income is paid for a set period of time.

Critical illness

These kinds of protection policies pay out a lump sum if you are diagnosed with an illness covered in the policy you take out. The most common illnesses include cancer, heart attack, stroke and multiple sclerosis but the list of illnesses that are covered varies from policy to policy, so it is important that you read the policy details carefully when you are deciding which policy is right for you.

Income protection

This type of policy will pay out regular monthly payments if you are unable to work for an extended period of time, for example if you are involved in an accident or become ill. The monthly payments are typically based on a percentage of your salary. 

You can choose when you want the payout the start. In general, the longer you defer the payout, the lower the premium will be. Income protection policies can be particularly useful if you are self employed or if your employer only provides limited or statutory sick pay.

Why is financial protection important?

Peace of mind

Knowing that you have financial arrangements in place should you become too ill to work and are unable to earn money to support your family, or if you sadly are no longer here at all, is reassuring for you and your loved ones. Having policies in place, should the worst happen, means you don’t need to worry about ‘what ifs’ and you can focus on enjoying today.

Safety net

There is only so much we can control in our lives. Sometimes, curveballs hit and you can be faced with an unexpected situation that affects your income, leaving you financially vulnerable. Signing up to the right protection policies means that you would be able to continue to meet your financial commitments if you found yourself unable to pay your bills.

Time to get you back on your feet.

If you unfortunately find yourself dealing with an extended illness that means you can’t work, the last thing you need is to rush your recovery to get back to work as quickly as possible due to financial pressure. Income protection or critical illness cover can give you the time you need to properly recover and to work out if you need to make bigger life changes.

Protect what’s important to you.

Your primary concern might be worrying about how your family would be taken care of should something happen to you. Or you may be worrying about how you would keep up with your mortgage payments if you were unable to work. Protection policies give you reassurance that you are covering these possible eventualities.

How much do protection policies cost?

Monthly premiums vary, depending on the level of cover you need and the provider you choose.

Your health and your lifestyle choices will also have an impact on the premiums you have to pay with these types of products.

Remember, your policies are only valid for as long as you continue to make your monthly payments. If you don’t keep up with your monthly payments, your policies will be invalid, and any payout claims will be declined.

How PIL Southampton can help you 

Our expert team of independent financial advisers will always have your best interests at heart. They have a huge breadth of knowledge in the financial planning arena of protection policies and will make sure that they do their research and present to you the best options they can find to best suit your individual needs and wants. 

How you can contact PIL Southampton

You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.