The reason it’s so close to my heart is because of my daughter, Olive, who was diagnosed with the disease in 2020 at the age of two-and-a-half weeks. The awareness week holds fundraising events across Britain and helps to increase understanding of the condition, which causes persistent lung infections and can limit breathing ability over time.

Being the parent of a child with a long-term illness often reminds me of something many people across the UK experienced during the Covid pandemic: you never know what tomorrow holds.

Despite this, research by Nationwide reveals that only 27% of people have income protection that could help them maintain their lifestyle if they were unable to work because of illness.

One reason so many people don’t have income protection, or life cover, is because they believe several popular and misleading myths around insurance. If you’re wondering: “should I have financial protection?”, discover three misconceptions that could result in you overlooking it, and why they don’t stand up to scrutiny.

1. “Insurance companies don’t pay out”

The belief that insurers will not pay a claim is one of the most common and misleading myths around financial protection. This is far from the truth.

In 2021, for example, 98% of claims made on approved financial protection products from regulated providers were paid out. That’s according to the Association for British Insurers (ABI), which also revealed that insurers paid out a total of £6.8 billion last year.

What’s more, the pay-out rate was not a one-off, as the ABI also reveals that in 2020 it was again 98%, and in 2019 it was 98.3%.

This means that the majority of individuals and families with bona fide protection received a cash payout when they needed it most.

With insurers paying more than 9 in 10 critical illness claims, and more than 4 in 5 new income protection claims, individuals didn’t have to rush back to work for financial reasons, and could instead return when they had fully recovered. Alternatively, they may have received a lump sum that paid for private treatment, allowing them to have surgery more quickly and return to work – fully recovered – earlier.

It’s worth noting that of the 1.7% claims that were not paid out in 2019, the most common reason was non-disclosure of information by the policyholder. That’s why omitting information to reduce your premiums is likely to be a decision you later regret.

Speaking to a financial planner who can recommend the most cost-effective cover that’s right for you is likely to be a much shrewder decision.

2. “I don’t need it”

Another popular myth about financial protection is that it’s unnecessary. While many of us routinely protect our home, car, and pets because we want to receive a payout when the unexpected happens, many people don’t protect themselves or their income.

If you’re one of them, this could result in your family not being able to maintain their lifestyle if you die or are diagnosed with a serious illness. This might mean your loved ones suffer financial hardship and could even be forced to move out of the family home.

Furthermore, an article by the Independent makes for startling reading. It reveals research by Macmillan Cancer Support that showed 83% of people with cancer were an average of £891 a month worse off because of additional living expenses or loss of income.

While your employer could provide sick pay, they are not legally obliged to, and when they do, it is typically for three to six months, after which it’s likely to drop substantially. You may be able to claim Statutory Sick Pay (SSP), however, that’s just £99.35 a week for 28 weeks (2022/23).

This means you will probably rely on savings or investments to prop up your finances, which could significantly reduce your wealth. As you can see, this means financial cover is probably very necessary.

3. “It’s too expensive”

Another common misconception about life cover and income protection is that it costs too much. This is because people often assume it will be more expensive than it might actually be.

This is backed up by Legal & General research, which asked more than 2,000 millennials to estimate the monthly cost of £100,000 life cover for a 30-year-old non-smoker. The cover was for a term of 30 years.

The median guess was £23 a month, with almost a quarter of those asked saying it would be more than £50 a month. In fact, L&G revealed that the actual cost was £7.27.

While the cost of taking out life insurance, critical illness cover or income protection may be less than you thought, you should always ensure that the policy is right for you and that it’s the most appropriate cover available.

Get in touch

This is not a comprehensive list of the common misconceptions around financial protection. If you would like to discuss these or any others you might have heard, and whether cover might be right for you, please email me at a.douglass@grosvenorconsultancy.co.uk or telephone 01793 766 123.

Alternatively, call my mobile on 07525 177 046. Please note that while I offer high standards of service and ensure any plan is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.

Please note

This article is for information only. Life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

The post 3 popular financial protection myths and why they don’t stand up to scrutiny appeared first on Alice Douglass.

What is income protection?

Income protection (sometimes called Permanent Health Insurance, PHI) is an insurance plan which pays out if you are unable to work due to ill health or injury.

How much does it pay?

The plan will pay out a percentage of your earnings. It will not pay the full amount you would receive for work:

1. To allow for tax and
2. To compel you to return to work

The maximum amount an income protection policy will pay is in the region of 60% of your earnings. If you are a company director, some providers will include salary and dividends in your earnings.

When you take out the policy, you can set it up so that the cover is either level or increases in line with inflation or at a fixed rate. If you have chosen increases, the premiums will also increase at each annual review.

Cover can either be for “any occupation” or your “own occupation”. The former will pay out if you cannot perform a pre-determined list of tasks, i.e. if you cannot do any kind of work; the latter will pay out if you cannot perform your own occupation. An example of this would be someone who does a physical job, such as a vet, if they were unable to do their own job but could do another job. Own Occupation would pay out, whereas any occupation cover would not.

When does it pay?

Income protection plans have a deferral period. This is a period of time from the date you are no longer able to work until the date the replacement income will commence. This period could be 0 – 24 months. The longer the deferral period, the less the plan will cost.

The policy will pay if you are unable to work for any reason, from having a bad back to stress. Certain parameters may need to be met, and medical practitioner opinions may be sought in order for income to commence.

How long is it paid for?

Plans will either pay out to the end of the policy term – usually normal retirement age, or for a specified period of time, e.g. 1 or 2 years.

You have to maintain premiums throughout a claim being made, therefore this could be a plan where having a Waiver of Premium included could be of benefit. If the premiums lapse, the cover will no longer be valid.

How much does it cost?

The cost of Income protection will depend upon a number of factors, including:

• Your age
• Your earnings
• The term of the cover
• The deferral period
• The payment term
• Health
• Occupation

If we take a 30-year-old male earning £35,000, a cover to state pension age (68) with a deferral period of 6 months would cost £25.50 per month. This would provide cover of £21,000 per annum to age 68 or until he returned to work. (The Exchange, December 2017).

 Do I need income protection?

 In answering this, you should consider the following questions:

 What do you think your biggest asset is? Many people think it is their house, but it is, in actual fact, your income. If you were unable to work for a number of years, the lost income would soon be much more than your house is worth, and that’s if you were able to keep up the mortgage payments.

Could you survive on £118.75 per week (2025/26)? This is the amount Statutory Sick Pay (SSP) pays. It is paid for up to 28 weeks. Not everyone will qualify for SSP – for example, if you are self-employed, you would not qualify.

How long would your savings last? Many people think they could rely on their savings if they were unable to work. If you are earning £35,000 per annum and you have savings of £20,000, how long do you think this would last? And what would you do if your savings ran out and you were still unable to return to work?

Does your employer pay your income if you are unable to work? If so, how long for? Some employers will pay a full or a percentage of your income for a period of time if you are unable to work. It is unlikely, however, that they will pay you up until state pension age. Even if your employer does provide income over and above SSP, you may want to consider taking out a personal Income Protection plan, which would have a deferral period that ties in with when your employer will no longer pay you.

Many people think that they will never be too ill to work for a long period of time; however, it does happen.

If you would like to look into taking out Income Protection, contact me for a no obligation initial complimentary meeting.

The post What is income protection? appeared first on Alice Douglass.