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5 reasons not to take out Protection Insurance

Critical Illness, Income Protection, Life Assurance, Protection
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Why you shouldn’t take out protection Insurance

“Who on earth wants to pay for insurance, sure it never pays out anyway!”

“The state can look after me if I get sick, that’s what I’m paying my taxes for!”

“My employer will look after me if I can’t work.”

“Life assurance costs too much”

“Sure it won’t happen to me?”

These are some of the answers I have received when I ask clients about whether they have thought about protecting their family.

We all know it’s a legal requirement to insure your car and if you have a mortgage your lender will insist that you insure your house.  However we choose whether or not to protect our family in the event of our death, in the event of being diagnosed with a critical illness or simply being unable to work due to ill-health.

Protection Advice

Types of Protection Policy

Protection can be split into the following 3 groups:

Life Assurance – This can pay out a lump sum or an income to your dependents if you die

Critical Illness Cover – This pays a tax-free lump sum if you are diagnosed with a serious illness and can also be added to a Life Assurance policy

Income Protection – This can pay out a monthly sum to cover bills in the case of sickness or injury

The plan will have no cash in value at any time, and will cease at the end of the term. If premiums are not maintained, then cover will lapse.

The policy may not cover all definitions of a critical illness. For definitions please refer to the Key Features and Policy Documents.

The Protection Insurance Myths

1. Sure it never pays out

If you read the tabloids you can be forgiven for thinking that insurance never pays out.  According to research carried out by Life Search the general public believe that only 38 per cent of protection insurance claims get paid.

Insurers generally publish their claims statistics for life cover, income protection and critical illness on an annual basis.  As stated earlier pay out rates for most providers are generally over 90%.

2. The State can look after me

If you are unable to work because of illness or disability, you can claim Employment and Support Allowance.  However if can live on the following, good luck to you:

Time period

Circumstance

Weekly amount

First 13 weeks

Under 25

£56.80

First 13 weeks

25 or over

£71.70

From 14 weeks

Work Related Activity Group

Up to £100.15

From 14 weeks

Support Group

Up to £106.50

You can insure your income for up to 65% of your gross earnings (depending on the insurer).

It’s important to note that if you die there is no significant payout from the state to your family. 

3. My employer will look after me if I can’t work.

Most UK employees will only receive Statutory Sick Pay of £86.70 a week for the first 28 weeks if they were off sick long-term. You may get slightly more if your employer generous.

Swiss Re estimate that only a quarter of UK employers provide any life insurance, income protection or critical illness cover as a benefit to their employees.

Note that if you are one of the lucky employees check that you are not over insured. For instance two separate income protection policies covering 50% of your income will still be limited to a maximum pay out of 65% of your pre injury gross income.

4. Life assurance costs too much

Regardless of the price there will always be those who say it costs too much.  However the reality is life assurance is cheap, dirt cheap if you are young, fit and healthy.

The price of protection policies is affected by factors such as your age, health, family history, the amount and term of the cover.

You can get life assurance cover from as little as £5pm.

5. Sure it won’t happen to me

Of all the dodgy reasons not to protect your family, this is my favourite. This one is straight from the mouth of each and every ‘Mr Invincible’ in the country.

More than 1 in every 3 of us are likely to develop some form of cancer during their lifetime.

We all have a relative that just loves to tell us about so-and-so down the road who had a car accident and will never work again. Or thon eejit down the road who got badly injured playing football and him with three young children to look after too.

But sure it’ll never happen to you.

Hopefully I have smashed some of the common misconceptions about protection policies and made at least one person think again.  Remember once you have a family, the insurance you buy is not just for you it’s for them.  You are protecting your family’s lifestyle, their home and most importantly their future.

If you decide to ignore these needs then so be it but it is essential that we understand the consequences of our actions and take responsibility for them.  If the proverbial hits the fan, don’t let these myths be the reason you decided to nothing.

If you would like some advice on protecting your family, please give us a call on 02895 815000.

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About Ciaran Scullion

I am a Financial Planner and Mortgage Adviser. I provide Independent Financial Advice through my company From Acorns Financial Planning Ltd to personal and business clients throughout Northern Ireland from my base in Tyrone, Mid Ulster.

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