Most of us insure the things we value. Our homes, cars and even our mobile phones can all be covered against the unexpected. But what about something arguably even more important – ourselves and our income?
Recent findings from the Financial Conduct Authority (FCA) suggest that millions of people across the UK may not have considered what financial protection they or their families would need if the unexpected happened.
It is an issue the FCA has described as the UK’s “protection gap”.
What is the protection gap?
Protection insurance is designed to provide financial support when life does not go according to plan.
Depending on the type of policy and its terms, protection could provide financial support if you die, are diagnosed with a specified critical illness, or become unable to work because of illness or injury.
Common types of protection include:
- Life insurance – which can pay out if you die during the term of the policy.
- Critical illness cover – which can pay a lump sum if you are diagnosed with one of the specified critical illnesses covered by your policy and meet the policy definition.
- Income protection – which can provide a regular income if you are unable to work because of illness or injury, subject to the terms of your policy.
The FCA has found that while many consumers could potentially benefit from protection, significant numbers do not have cover in place.
More strikingly, for many people the issue isn’t necessarily deciding against protection; they may simply never have considered what protection they need in the first place.
When did you last think about your protection needs?
Protection can easily sit towards the bottom of the financial to-do list. But certain moments in life can significantly change your financial responsibilities.
Buying a home is an obvious example. Taking on a mortgage could mean committing to repayments for decades, so it is worth considering what would happen to those repayments if your household suddenly lost an income.
But buying a property isn’t the only time to review your circumstances.
You might want to reconsider your protection needs when you:
- buy a home or move house
- get married or enter a long-term partnership
- have a child
- change jobs
- become self-employed
- take on significant new financial commitments
- experience a substantial change in household income.
Speaking at a recent event, the FCA’s Ed Smith highlighted these important life moments as potential opportunities to encourage people to think about protection.
He also pointed out that people such as renters, those on lower incomes, the self-employed and gig-economy workers may be less likely to encounter some of the traditional conversations that prompt people to consider protection.
That makes actively asking the question even more important: what would happen financially if something happened to me?
Three questions worth asking yourself
Understanding your protection needs doesn’t mean immediately buying an insurance policy. A good starting point is simply understanding your current position.
- What would happen if I couldn’t work?
Think about how your household would manage if illness or injury meant you couldn’t earn your usual income for several months or longer.
Would your employer continue paying you? Do you know how long your sick pay would last? How much do you have in savings, and how long could they realistically cover your mortgage or rent, bills and everyday living costs?
- What would happen to my family if I died?
If somebody depends on your income, consider what their financial position would look like without it.
That could include mortgage or rent payments, household bills, childcare and other everyday expenses as well as longer-term financial commitments.
- What protection do I already have?
You may already receive benefits through your employer or have existing insurance policies in place.
Before considering additional cover, it can be useful to understand exactly what you already have, what circumstances it covers and whether it still reflects your current needs.
Protection isn’t one-size-fits-all
The appropriate type and level of protection will depend on individual circumstances.
Someone buying their first home, for example, may have very different financial commitments from an established homeowner with children, while somebody who is self-employed may need to think differently about how they would cope if they were unable to work.
Your needs can also change over time.
That’s why protection shouldn’t necessarily be something you arrange once and then forget about. Major life events can be a useful opportunity to review existing arrangements and check whether they remain suitable.
Making protection part of the mortgage conversation
Buying a home naturally focuses attention on mortgage rates, deposits and monthly repayments. However, it can also be an important opportunity to consider the bigger financial picture.
At Flagstone, our advisers can discuss protection alongside your mortgage requirements, helping you understand the different options available and identify cover appropriate to your individual needs.
As independent advisers, Flagstone can arrange protection products including life cover, critical illness cover and income protection from the whole of the market.
Whether you’re buying your first home, moving, remortgaging or simply haven’t reviewed your existing protection for some time, having a conversation about your circumstances can be a useful place to start.
Do you understand your protection needs?
The FCA’s findings highlight an important issue: before people can decide whether protection is right for them, they first need to understand the risks they and their families could face.
You don’t need to know which policy you need before speaking to an adviser. In fact, you don’t need to know whether you need a policy at all.
Start with the questions that matter.
What would happen if I couldn’t work? What would happen to my family if I died? And are the arrangements I already have enough?
A Flagstone adviser can help you explore those questions, understand your existing position and discuss the protection options that may be suitable for your circumstances.
Speak to Flagstone today to review your protection needs.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Availability will depend on your individual circumstances & credit history. Flagstone will charge a fee for arranging your mortgage, in the region of £299, payable on application.
