The five myths of protection cover
For years, protection insurance has had a bad name. But most providers, through pressure from the media and consumer-friendly advisers, have begun to get their act together.
Protection insurance comes in four forms – life cover, which pays out a lump sum to your family if you die; critical illness insurance, which pays a tax-free lump sum if you are diagnosed with a serious illness; income protection, offering a monthly sum to cover bills in the case of sickness or injury; and family income benefit, which pays a monthly income if a person dies.
Here, we debunk five commonly held myths about protection cover.
1) IT NEVER PAYS OUT
A snapshot of the public’s view on protection insurance shows that, on average, people believe only 38 per cent of claims get paid. This is according to Protection Review, a kind of watchdog headed by leading experts in the field. But most companies now regularly publish claims statistics for life cover, income protection and critical illness, which paint a different picture.
Kevin Carr, chief executive of Protection Review, says: “The reality is that over 90 per cent of all claims for these products in the UK are paid promptly and without fuss.” It is also important to note that such policies are very different from the much maligned poorer relation, payment protection insurance, which is notorious for not paying out.
2) THE STATE WILL PROVIDE
If you are unable to work because of illness or disability, you can claim Employment and Support Allowance from the State, but this amounts to little more than £71 a week for those over 25, covering the first 13 weeks, after which time the payout rises to just over £100 a week, but cover afforded under an insurance policy is likely to be much higher. If you die, there is no significant payout from the State, only from an insurer if you have life insurance or family income benefit cover.
3) MY EMPLOYER WILL LOOK AFTER ME
More than three-quarters of all UK employers do not provide life insurance, income protection or critical illness cover as a benefit to employees, according to a report by global insurance company Swiss Re. Those who are covered by the terms of their employment should check their contracts and avoid overlapping policies.
The majority of workers would receive nothing from their employer if they were off sick long-term. Statutory Sick Pay would amount to only £86.70 a week for the first 28 weeks, or slightly more if your employer is more generous. But payouts under insurance cover would be more substantial.
4) IT IS TOO EXPENSIVE
People spend an average of £27 a month on protection policies – the same cost as a takeaway meal for a family. But factors such as age, health and level of cover will affect the premium.
Many people are surprised when they realise the cost of cover, especially life insurance, is much lower than they expected.
This was the case for Emma Sibthorpe, 31, and her fiance, Liam Taylor, 24, who bought a short-term income protection policy. These typically pay monthly sums for up to a year. Emma, a legal secretary, and Liam, a delivery driver, from Newton Abbot in Devon, are saving to get married next April. Emma, who has a 12-year-old son, Dylan, says: ‘As we have just bought our first house and are saving for our wedding we didn’t think we could afford a policy – but were pleasantly surprised.’
The couple bought a plan with British Friendly for just less than £6 a month, offering £500 per month of cover.
5) IT WON'T HAPPEN TO ME
No one is invincible. More than one in three people are likely to develop some form of cancer during their lifetime and millions of people suffer in accidents each year – some minor, but others enough to keep you off work, potentially losing your income.
If you want advice on which type of protection insurance is most suitable for your particular circumstances, then please give us a call and we will be happy to discuss your options and tell you which companies have the lowest premiums.