The number of parents who have adequate protection should they die or become seriously ill is falling to dangerously low levels.
Parents with dependent children have a number of options to ensure their family can cope financially in the event of serious illness or death; these include Life Cover, Critical Illness Cover and Income Replacement, also known as Permanent Health Insurance of PHI.
However the research from Scottish Widows shows that the number of adults protecting their family is falling:
- Only 24% of adults in the UK have any financial protection
- The number of people with protection has dropped significantly from 31% in 2013
- Nearly all households with children now rely on two incomes
Despite these figures the also survey found that 45% believe parents should take responsibility for protecting their family.
No savings to plug the gap
The survey also found that despite the lack of protection, 54% of people had savings which would only last for a couple of months if they were unable to work.
Commenting on the survey Esther Dijkstra, Head of Protection Scottish Widows said: “We can’t ignore the financial pressures currently being faced by a large number of UK households, with families often supporting children and parents at the same time, whilst also relying on two incomes. However, many families in the UK, particularly those with dependent children, are worryingly under protected and the loss of one income could have significant long term repercussions for all generations.”
“It’s not always the easiest topic to discuss but it is one people should make time to think about and set up robust protection that adequately supports their family and safeguards their future. The industry also needs to continue to educate people about the importance of financial protection to help convert awareness into action.”
What are your protection options?
There are three key types of protection:
Life Cover This is the most basic form of protection and as the name suggests pays out a lump sum should you die. Policies are set up for a specific term and can be used to protect a mortgage or provide a lump sum to replace your income.
Life Cover can be arranged in your own name or jointly with your spouse or partner.
Any payment made is free from tax.
Critical Illness Cover This type of protection pays out if you suffer a serious illness such as cancer, heart attack or stroke. The list of illnesses covered by most policies are comprehensive and can run to over 50 conditions, which might be life threatening, but which hopefully you will recover from.
Once you have been diagnosed with the condition a payment is made, which can then be used to repay your mortgage or replace your income.
Critical Illness Cover is often combined with Life Cover, and again, the payment is free from any tax.
Income Replacement This option provides an income if you are unable to work for a relatively long period of time.
When the policy is set up you choose the deferred period, which is the time you will have to wait before you can make a claim and usually dovetails with the sick pay benefits given by your employer.
You also choose the cessation age, which is the age when payments will stop if you were never to work again; this is usually set to dovetail with your pension.
You also choose how much you are covered for, although most insurers cap the amount at 50 – 60% of your salary, mainly because income paid to you is tax-free and you may also qualify for some state benefits.
How much does it cost?
Probably less than you think!
As a rule of thumb Life Cover is generally inexpensive and affordable for most people. Adding Critical Illness Cover can increase the cost significantly. However, for many people this is vital protection they can ill afford to do without, especially if they have a mortgage or reply on two incomes.
Income Replacement can also be surprisingly affordable, although much depends on the type of job you do, the level of cover you need and how long you can wait to receive the pay-out.
Don’t let cost put you off
If you have children, little in the way of savings and rely on two incomes to keep your household going, you really can’t afford to be without some protection.
Don’t let the cost put you off though, work out a budget and then see what you can buy.
We’re here to help you and can advise you on the best option for your own circumstances and budget.
However little you have to spend, having some protection is better than nothing at all and you can always build up your cover over time.
For more information and advice call us today on 0115 933 8433 or drop us a line to info@investmentsense.co.uk
