What is protection insurance?
Protection insurance is an umbrella term to describe insurances that provide cover for you and your loved ones in the event of death or illness.
There are many stories of individuals or whole families having their lives turned upside down by one small slip that they could not recover from. An illness or an accident that destroys assets, or disables the ability to earn an income. This post covers some of the tools that can be used to protect against these disasters.
Insurance is a funny thing; most people don't want to buy it because they don't think they will ever need it. At a young age you feel invincible, "it will never happen to me!". If you do buy insurance you then pay hoping you never need it - but when you do need to claim you are very glad you have it. It’s finding the balance between what you can afford and what you need; if life insurance was free we would all have £billion cover.
There are many different forms of insurance policies that we can purchase which are designed to get you back into something like the position you were in before the insured event happened.
Protect your assets
For the majority of people, the assets they most want to protect will be their car, their home, and the possessions within that home. Car and Home Insurance provide this cover. Car Insurance is a legal requirement if you drive a car; home insurance is a choice.
Home Insurance covers the building that you live in and the contents of the building against theft, damage by fire, and flood, amongst other things. Depending on your preferences, you can get cover for either or both of these at the same time. It is not a legal requirement to insure your home, but it can pay out huge amounts for damage caused by fire, theft, and flood which otherwise would bankrupt most people. When you take out a mortgage most lenders insist you have a building insurance policy for the property you are buying.
Protect your lifestyle
The following insurance policies cover life events that could affect your ability to earn an income and therefore be unable to look after yourself and any dependents.
Life Insurance does what it says on the tin. Term Insurance is the cheapest, for example, a guarantee to pay £10,000 anytime in the next 10 years if you die.
Critical Illness Insurance pays out a tax-free lump sum if you are diagnosed with an insured medical condition during the term of the policy. Often these are not life-ending, but they will likely mean an extended period off work.
Income Protection Insurance pays an agreed portion of salary each month if you cannot work because you have had an accident, fallen sick, or lost your job through no fault of your own.
Wills and Powers of Attorney are not insurance policies and can be purchased for one-off fees. A will is a legal document that sets out your wishes regarding the distribution of your assets and the care of any children. If you die without a will, those wishes may not be carried out and your heirs may be forced to spend additional time, money, and emotional energy to settle your affairs.
A Power of Attorney is just as important as a will. Without a power of attorney, if you lose your faculties through dementia, a stroke, or accident, sorting your finances is less clear-cut than if you had died. Do not assume relatives can walk into the bank and access your money, not even to pay for your care or a mortgage.
Deciding how much insurance you need is like deciding on the length of a piece of string. If you are lucky, your employer will cover some of these within your employment package. Find out what they cover and decide how much extra you need.
Work out what is right for you and your family.