Why you need financial protection: Bridging the gap for financial
Fact Checked
Protection policies serve as a crucial safety net, offering peace of mind for you and your family should the worst happen. The financial security provided by insurance becomes particularly significant when dealing with life-altering circumstances such as illness or death.
Recent data reported by FTAdviser reveals a concerning “protection gap,” with only 44% of individuals having sufficient life cover to safeguard their families. Shockingly, this figure drops to 26% among couples with children.
The study suggests that the “squeezed middle,” ie people aged 30 to 40, are particularly at risk of falling short on protection. This age group, often with children and substantial mortgage payments, faces increased vulnerability when confronted with illness or incapacity.
Beyond life insurance
While life insurance is a common consideration in protection policies, it only addresses part of the overall risk. Income protection and critical illness cover play equally vital roles, especially for those aged 30 to 40, who may have dependents and significant financial responsibilities.
A study conducted by LV highlights the financial uncertainty faced by adults aged 25 to 44, with 44% lacking confidence in their ability to cope financially if they were to fall ill. In addition, 28% of people in this group would struggle to meet their financial obligations after just two months of being unable to work.
Considering that half of the respondents noted their partner relies on their income, or both incomes are necessary to cover expenses, those without adequate protection could end up in severe financial difficulties in the event of a family tragedy.
The stark reality: A widening protection gap
FTAdviser reports that many individuals in their 30s and 40s lack the necessary coverage; a situation exacerbated for couples with children, where an estimated 74% are without adequate protection. This highlights a glaring protection gap among the “squeezed middle,” leaving them exposed to potential financial crises.
Fortunately, seeking professional advice can help bridge this gap, ensuring that families are adequately protected against unforeseen circumstances.
Real-life case study: The importance of comprehensive protection
A case which demonstrates the importance of protection comes from financial adviser Nick Tattersall, from Flying Colours. He worked with a young couple in their 20s some years ago. Although they had life cover on their mortgage, they opted out of critical illness cover due to cost concerns. Nick emphasised the higher probability of needing to claim on critical illness cover and persuaded them to take out the relevant insurance.
Several years later, one of the spouses faced a serious illness, leading to surgery and an extended absence from work. The protection policy not only repaid the mortgage but also provided crucial financial stability during a challenging time. This case underscores the importance of comprehensive protection, regardless of age or the state of your health currently.
Learn from the lessons of others: The consequences of skipping vital cover
TV presenter Jonnie Irwin’s story, as reported by Money Marketing, serves as a stark reminder of the consequences of skipping critical illness cover. Diagnosed with terminal cancer, Irwin lacked a safety net, forcing him to continue working during treatment to avoid financial hardship for his family. His experience highlights the necessity of having the right cover in place.
When protection becomes essential: Common scenarios
There are numerous situations where insurance can provide a financial buffer against life’s uncertainties:
- Incapacity to work: Income protection policies offer regular income based on your average earnings until you can return to work.
- Critical illness diagnosis: Critical illness cover provides a lump sum to cover living expenses and treatment following a qualifying diagnosis.
- Redundancy: Some income protection policies include redundancy coverage, alleviating the financial strain whilst you look for a new job.
- Death: In the unfortunate event of death, your family receives a lump sum to cover funeral costs, mortgage repayments, and/or living expenses.
Closing the protection gap
Tragedy can strike at any age, which makes it crucial that you assess whether you have enough insurance cover. Seeking professional advice ensures that you understand your protection needs and can make informed decisions to shield your family from potential hardship.
Contact Flying Colours
If you are worried that your protection policies do not meet your needs, or you don’t have any in place at all, we can help you find adequate cover. For a free, no-obligation consultation, contact Flying Colours on: 0333 241 9900 or visit: www.fcadvice.co.uk to book a call.
For further information on insurance and protection, visit: https://fcadvice.co.uk/about-you/protecting-your-family/
I’ve been working in financial services for more than ten years. I’m passionate about assisting my clients with investment and pension planning, retirement planning, and financial protection planning. As well as assisting clients who are preparing for retirement and later life, I also enjoy helping my younger clients to achieve their financial objectives and plan for the future. I really enjoy finding innovative and creative solutions which will help you to achieve your financial goals and objectives.
