Most people in the UK do not have any type of financial protection. While there may be a good reason for some, in others it’s a decision that is sparked by myths and misconceptions, and this could mean missing out on financial protection when you need it the most.
The most popular type of financial protection is life insurance, used by 29% of people. However, uptake of other types of financial protection suggests some families could face difficulties if the unexpected happened. Just 13% of people have critical illness cover and 6.1% have taken out income protection insurance.
Not all financial protection products will be appropriate for you, but it’s important to consider if they could provide you with a safety net when you need it. If these five myths have stopped you from reviewing financial protection policies, it’s worth taking another look.
1. "Insurance policies don't pay out"
A common misconception is that insurance providers will do anything to get out of paying. However, the majority of claims do pay out. In 2022, 98% of all claims were paid in full, a number that has remained consistent since 2017 according to the Association of British Insurers.
Over the year, £6.85 billion was paid out in life insurance, income protection and critical illness claims. More than 15,900 people claimed against their individual income protection policies in 2022, a figure that shows a 9% increase from the previous year.
In more than half of declined claims in 2022, customers had not informed their insurer of key details about themselves or their circumstances when taking out the policy. It is important to remain truthful when taking out any type of financial protection. Failing to disclose things such as a pre-existing medical condition or whether you are a smoker could invalidate your policy.
2. "I don't need insurance"
If your income stopped because you were unable to work, how long would your savings last? If you don’t have a safety net that could provide for you, having long term financial protection can be valuable.
People often think they don’t need financial protection if they have no dependents or a mortgage. However, it can still provide a valuable income or lump sum to cover things like your rent and utility bills or ensure you can maintain your lifestyle if something happens.
Some people also overlook taking out financial protection if they are not the main income earner within the household, but illness can still have a huge impact on you and your family. If a stay-at-home parent became ill, for instance, the other parent may need to take time off work, or childcare costs could rise significantly.
3. "It's too expensive"
The cost of financial protection does vary, but often it’s cheaper than you might think.
The price of the premiums will depend on two key factors. First, the level of cover you want. The more cover you’d like, the higher your premiums will be. Other choices you make can also have an impact. For example, if you choose to have a longer deferment period when taking out an income protection policy, your premiums will be lower.
Second, your health and lifestyle will have an impact. As you get older or if you have any existing health conditions, premiums will rise. Lifestyle choices such as smoking can also affect your premiums. However, that doesn’t mean the cost of insurance will be expensive. Getting some quotes can be useful to help you understand how much protection will cost.
4. "I can't take out insurance because I have health issues"
Having a pre-existing health issue does not mean you can’t take out financial protection, but it does mean that it might be difficult to find the right policy for you.
Existing health issues may mean your premiums are higher or that exclusions apply, but this is not always the case. It is worth getting a few different insurance quotes to make a comparison, particularly from specialist providers that offer policies for those with pre-existing medical conditions. We can help you understand what type of cover is right for you and find a policy that suits your needs, visit our page here to find out more.
5. "The cover my employer provides is enough"
In some cases, this may be true. However, it’s always important to understand the cover you have and regularly review it as your situation may have changed.
While your employer may offer a comprehensive sick policy that provides security for a year, what would happen if you had to give up work long term? Or your company may offer a death in service benefit, but would the sum be enough to cover your mortgage or provide your family with financial security? In some cases, additional cover can supplement what your employer offers.
If you have financial protection, including protection provided by your employer, you should consider how it will all fit together. For instance, if you receive sick pay from your employer, you may choose to have a longer deferment period on an income protection policy, which would reduce your premiums.
If you would like to understand more about financial protection and how it could benefit you, please contact the George Square team.