It won’t happen to me
1 in 35 men and 1 in 20 women will develop cancer before age 50
1 of every 13 deaths in 2010 were among those aged 35 to 59 years
Average age for a critical illness payout is 44
Average age for an income protection payout is 47
£8.3 million paid in protection claims every day
Just a few of the statistics that highlight the importance of having an appropriate level of financial protection in place, for individuals and for their families.
No one likes to think about dying. Or suffering from an illness or an accident that would leave them unable to work. Sometimes it’s easier not to think about the negative consequences of the unknown, rather than plan ahead to ensure you and your family would be taken care of if the worst happened. This has created an ongoing problem in the UK with many not giving enough thought to protecting outgoings and income against unforeseen circumstances that, sadly, happen all too often.
What protection do I need?
Protection products are aimed at mitigating the financial consequences of an unknown event. The most common examples are paying off a mortgage if one of the main earners in the family were to die or become seriously ill, or ensuring that an income was available to cover household costs, childcare or school fees.
Protection can provide either a lump sum or an income, depending on the type of product. The main types of protection products available are:
Income protection: replaces income lost through the inability to work because of sickness or accident. It pays a regular monthly amount, usually between 50% and 75% of salary. The policy can pay out for a fixed period, for example for 2 years, or until a certain age, such as up to retirement age when a pension income may be expected to start.
Life insurance: pays a lump sum on death. It is usually designed to covers a specific liability such as an outstanding mortgage, or can simply provide a lump sum to a surviving dependant or family. Can be combined with critical illness cover.
Critical illness cover: pays a lump sum on the diagnosis of a serious medical condition, often being used to repay a mortgage or provide a lump sum to make day to day living easier or pay for specialist treatment. Can be combined with life insurance.
Family income benefit: in a similar way to life insurance, pays out if the life insured dies. However, instead of providing a lump sum, it pays out a regular income intended to meet ongoing costs such as household expenditure, childcare or school fees.
And the cost?
Competition for protection business is high – this is good news for policyholders as it means premiums remain competitive, and it also means that many policies provide valuable additional benefits, such as cover for children, online / telephone access to medical professionals and second opinions from leading experts around the world, all provided at no additional cost.
And cost is not as high as you may think. Here are a few examples based on a fictional couple, both non-smokers and on standard terms (i.e. no material health conditions) – John is aged 33 is an IT manager, and Sarah aged 30 is a teacher. Premiums quoted are as at May 2014.
Income protection insurance (for John) – £26 per month
After a six month waiting period (when at least statutory sick pay would be payable) £1,250 payable per month until age 65.
Life insurance – £8 per month
Joint policy paying £100,000 lump sum, decreasing over 25 year term (mortgage protection) on first death.
Critical illness and life insurance – £31 per month
Joint policy paying £100,000 lump sum decreasing over 25 year term (mortgage protection) on first diagnosis of critical illness or on first death.
Family income benefit – £19 per month
Joint policy paying £15,000 per annum on first death during the 25 year term.
But do insurers pay out on claims?
If you’re sceptical about the likelihood of pay outs, then you might be surprised. The latest statistics from the Association of British Insurers (ABI) shows an increase in the payouts being made, with 97% of claims made in 2013 being successful. Various initiatives have led to a fall in the percentage of claims being declined as customers become more aware of the information they need to share with their insurer.
Ensuring the right level of cover is in place can be difficult. The right approach for an individual, and their family, will depend on their own situation, and this is where taking professional financial advice can add value to ensure the right level of protection is in place for the right budget.
Statistics sourced from Cancerresearhuk.org; Cancer stats, Lifetime risk (2010), ONS 2010, ABI 2013, Ageas and Friends Life