This time of year, we get lots of emails from insurance providers with their annual protection claims stats. And they are sobering. That’s the only word that I can think of. The amounts are huge, but when you think of the reason behind the numbers, that’s scary. They aren’t just statistics. They are people and their families.
In 2022, Legal & General, one of the biggest players in the protection market paid out a record £883m in protection claims. This breaks down as them paying over £2.4m worth of claims every day.
Aviva paid out individual insurance product claims of £683m.
Royal London paid out 99.4% of all their claims which came to more than £631m. Of this, £132m was for critical illness and £2.5m was the amount of income protection they paid out.
LV paid out £126m in their individual protection claims which supported more than 8,000 claimants and their families.
This is all just last year – 2022.
So hopefully this disproves the first theory that “it never pays out” because that just isn’t true. It’s what we tell ourselves to stop ourselves paying the monthly premium.
Protection and Life Insurance is something nobody likes to discuss, but that doesn’t mean it’s not important. One of the very first things anyone should do when they are reviewing their financial situation is to make sure they are protected against disaster.
“But it won’t happen to me…..” – Almost Everyone
Protection is the Elephant in the Room
We (as in financial advisers and planners as a whole) have arguably shied away in recent years from talking as openly and publicly about insurance. Everyone hated the sleazy insurance sales man in the sharp suit and fancy watch who did the rounds and sold you a policy. And how many said, “I’ll give you a discount if you introduce me to two of your friends or family”? And as a result, when we say we’re financial planners at a wedding, everyone runs.
I don’t blame you really.
The industry has brought it upon itself, and it’s our job to change that perception. Hopefully, we’re making a small ripple in that vast ocean of untrustworthiness. I think the only people who are trusted less are politicians and car salesmen. I’d like to think that one day, our industry will be considered a profession, with recognised professional standards and a reputation to match. But that’s for another blog.
However, it doesn’t take away from the fact that we always need to have a back up plan before we start looking at planning for your future.
“Every one has a plan ‘til they get punched in the mouth “ – Mike Tyson
Why Do I Need Protection?
In a non-exhaustive list, some of the times you need to be thinking about protection are when you:
- Get a mortgage, or take on a bigger mortgage
- Have a child/children
- Have a partner or family who relies on your income as the breadwinner
- Get or change a job
- Leave a job and you lose workplace benefits
- Take on debt like a business loan for example
- If you have a potential Inheritance Tax liability to cover
There are three main types of insurance we suggest everyone at least considers. Any financial planner should tell you they have all three. I know both myself and John do.
- Life Insurance – a policy which will pay out a lump sum (£100,000 for example) if you die.
- Critical Illness Insurance – a policy which will pay out a lump sum (£100,000 for example) if you are diagnosed with a specified critical illness
- Income Protection – a policy which will pay you a monthly income (£2,000 per month for example) if you are medically unfit to work
Each policy has many more options, variables and add-ons which we won’t go into detail here, but if it’s something you’ve been mulling over, it’s worth asking the question.
We can bolt on life cover to critical illness policies, at little to no additional cost. In fact, sometimes it’s cheaper to add it in,
Speaking of cost and premiums….
How Much Does Protection Cost?
The annoying answer is – it depends….
I took out all of my policies before I was 30 and I pay around £100pm in total for my policies.
One of which is a decreasing mortgage cover which pays out on Life or Critical Illness. Secondly, a Life or Critical Illness policy which would pay out £200k should anything happen to me, and finally, an Income Protection policy which would pay me £2,000 per month if I couldn’t work for more than 3 months.
I’ve set these premiums to remain the same throughout the policy. That’s the catch I see with most of the DIY options and TV and Radio Advertisements. They quote a price of something like “from just 50p per day (based on a 30 year old, non smoker with no health conditions)” but often these increase every year, and end up getting expensive.
The issue with this is people start to cancel them because they become too expensive, at a time in their life when they are potentially most likely to benefit from them.
Some of the factors which affect price are:
- Age – the older you are, the more expensive it is
- If you have any medical issues or a history of medical issues
- Lifestyle – things like smoking (including vaping) or a high BMI or if you take part in “hazardous pursuits” such as motor racing or climbing or sky diving
- If your family has a medical history – particularly things like cancer, heart attacks or stroke before the age of 60
- If you work in a “riskier occupation”
- And of course the type of policy, the level of cover and the options you select
There is lots to think about and lots of options, and we really would strongly advise you to speak to us (or other advisers are available).
We want this to be your worst financial investment
What I want you to leave with is this. I want this to be the worst financial investment you ever make. Because that means you spent all of the money on the premiums and never saw any benefit of it.
Some policies now offer add-ons such as 24/7 online and phone support with doctors or nurses to get a second opinion. This is something which we have actually looked to use recently when we couldn’t get an appointment with our GP. Arguably now, you still do get some benefit if you don’t claim.
But, if you do need to make a claim, it very quickly becomes the best investment you ever made. Imagine, if you needed to claim. Everything might seem bleak and your future uncertain,. But with the right planning, you can take comfort in knowing you will have the money available to you to pay off the mortgage, provide for your family and put food on the table. And so you have provided two of our most basic human needs – shelter and food.
No amount of tax relief or investment returns or fancy savings strategies will ever be able to compete with that.
Speak to us if this has struck a chord with you or could benefit someone you know. Whether it’s a quick call or you book an online meeting for a general overview. We can talk through your options and steer you in the right direction – that’s what we’re here for.
*As ever, none of this should be construed as advice. Everyone’s situation is different and you should speak to a professional adviser about your own personal situation
**All statistics are as reported in linked articles. We have not verified the validity of these statistics