As you navigate life, financial protection can offer you and your family an invaluable safety net against any unexpected shocks that may occur. Whether you pass away, or fall seriously ill and can no longer work, your loved ones may struggle to meet their financial obligations if you don’t have protection in place.
Despite this, there are still some myths surrounding protection that could make you think twice about adequately shielding your loved ones from financial hardship.
So, continue reading to discover three common misconceptions that could make you overlook financial protection, and why these myths often don’t stand up to proper scrutiny.
1. “Protection providers rarely pay out”
A common myth surrounding financial protection is that providers do everything they can to avoid paying out.
However, the statistics show this is emphatically not the case. The Association of British Insurers (ABI) reports that insurers paid out £6.85 billion from group and individual protection policies in 2022.
In fact, the above source reveals that the number of new individual claims paid has remained consistently around 98% since 2017. This shows that the vast majority of those with protection in place received a payout when it was most needed.
What’s more, Legal & General revealed that it paid out an average of over £2.4 million in protection claims a day in 2022, providing £883 million to 17,768 claims across life cover, income protection and critical illness cover.
As for specific forms of cover, the ABI states that, in 2022, providers paid out:
- 99.99% of whole-of-life claims
- 96.9% of term life claims
- 91.6% of critical illness claims
- 84.4% of income protection claims.
This shows that, if you pass away unexpectedly, or you’re ill or injured and forced to take time off work, you can be confident in the knowledge that you and your family will receive financial support.
While the number of protection claims paid has remained consistent at around 98% for the last five years, there are still a small number of claims each year that aren’t paid.
The ABI say that, in more than half of the declined claims, customers had failed to tell insurers key details about themselves or their circumstances when they took out the policy.
This is called “non-disclosure”, and insurers may decline if, for example, you failed to disclose details of any previous or current medical conditions or treatment.
Another common reason for the non-payment of a protection claim is when it doesn’t meet the specific conditions of your policy. For example, some minor heart problems or certain types of less serious cancer sometimes aren’t covered by all critical illness contracts.
Ultimately, a shrewder decision could be to speak with a financial adviser, as a professional could recommend the most cost-effective cover that best suits your situation.
2. “Protection is too expensive”
Another misconception about financial protection is that it’s “too expensive”, although research has found that many believe it costs more than it actually does.
In a survey by Legal & General, 2,000 millennials were asked to estimate the monthly cost of £100,000 life cover for a 30-year-old non-smoker over a 30-year term.
The median guess was £23 a month, with almost 25% of those surveyed stating it would be more than £50 a month. Legal & General revealed that the actual cost was only £7.27 a month.
As you can see, many overestimate the cost of protection, and it may be much cheaper than you think. So, you may be able to put essential cover in place for just the cost of a TV subscription or a takeaway every month.
3. “I don’t need protection”
Yet another protection myth may be that you feel as though you don’t need life cover, income protection, or critical illness cover. If you’re young and healthy, you may think that protection is not for you.
However, without protection, you and your family may struggle to maintain their lifestyle if you’re unable to work due to an injury or illness. And, if you were to pass away unexpectedly, would your loved ones be able to keep paying their regular commitments such as mortgage, rent, or bills?
It’s easy to think that “this will never happen to me”, but the Guardian estimates that more than 500,000 people in the UK will be diagnosed with cancer annually by 2040.
What’s more, the Independent states that those diagnosed with cancer will face average additional costs of £891 a month on top of their usual spending.
Even if your employer provides sick pay, it’s usually only for three to six months, after which the amount you receive could drop substantially. You may be able to claim Statutory Sick Pay (SSP), though this is only £109.40 a week for up to 28 weeks (as of the 2023/24 tax year).
Even during the 28 weeks of SSP, you should ask yourself whether this would realistically be enough to support your loved ones through this difficult period. Without protection, you’d likely need to use your savings or expensive borrowing to prop up your finances, which could negatively affect your long-term financial wellbeing.
As such, you can see just how necessary protection is if you’re to maintain your family’s lifestyle and avoid financial hardship.
Get in touch
We can dispel any other concerns you may have about financial protection and help you decide whether cover would be right for you.
Please email us at info@investmentsense.co.uk or call 0115 933 8433 to find out how we could help.
Please note
Note that financial protection 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. Cover is subject to terms and conditions and may have exclusions.
