What’s financial protection and do I need it?

Have you ever thought about how your family would cope if you were to pass away or were too ill to work? If you haven’t, then you’re not alone. According to a Financial Conduct Authority survey, almost half (46%)  held at least one protection product. Of these, only a quarter (28%) of respondents had life insurance while one in 10 (13%) held critical illness cover.¹

Do I need financial protection?

Life is unpredictable, and even the savviest of savers could find their plans are scuppered by events outside their control.

If you passed away, could your family continue to pay the mortgage while still enjoying the lifestyle they’ve become accustomed to? And if you were unable to work due to illness, how long could you keep paying the bills without dipping into your hard-earned savings?

Taking out financial protection helps ensure your family’s finances are taken care of, during what is an already upsetting and stressful time. It’s also a way of protecting the journey towards meeting your financial goals.

A guide to financial protection

Learn how to protect your financial security and safeguard your loved ones in our essential guide.

Download guide

Which products are right for me?

The protection products that are right for you depend on your individual circumstances, including whether you have a mortgage, financial dependants, such as a partner or children, or any other financial commitments. A wealth manager can recommend the policies that suit your needs but, in the meantime, these are the main ones to consider:

1. Life insurance

Life insurance pays out a lump sum if you pass away. There are different types of cover to choose from, but the most common one for those looking to protect a mortgage is ‘decreasing term’ life insurance. The sum assured (the amount the policy will pay out) reduces over time, typically in line with the way a repayment mortgage reduces. There’s also ‘level term’ life insurance, where the sum assured remains the same throughout the policy.

When it comes to how long your policy lasts, there are two types of life insurance: whole of life and term life cover. A whole of life policy continues until you die, so a payout is guaranteed, while a term policy is for a specific period of time, and pays out if you die during that period.

Life insurance should be considered by anyone who has an outstanding mortgage and/or financial dependants. As well as paying off the mortgage, the lump sum could provide an additional cash buffer to help ensure your family’s financial security.

2. Family income benefit

Family income benefit also pays out on death. However, instead of providing a lump sum, it pays out a regular income from when you die until the end of the policy. For example, if you took out a 20-year policy and died after 15 years, it would pay out for five years.

As its name suggests, family income benefit is aimed at families who want to provide their surviving partner and children with an income for a set period of time. It could help pay for school fees and other activities, as well as essential bills.

3. Critical illness cover

Critical illness cover provides you with a lump sum if you’re diagnosed with one of the critical illnesses covered by the policy. The lump sum could be used to help pay off the mortgage or other debts, or adapt living arrangements to your new circumstances.

Critical illness policies can vary from one provider to the other, both in terms of the types and severity of illnesses covered, and whether they offer premiums that stay the same throughout the policy (‘guaranteed’) or that can increase over time (‘reviewable’).

If you don’t think your savings would cover you if you became seriously ill, critical illness cover could be well worth considering.

4. Income protection

Income protection pays out a regular income if you’re unable to work because of an accident or illness, including a mental illness like depression. You can choose when you want the payout to start – in general, the longer the deferred period, the lower your premiums will be. You can also choose between short-term cover, which might pay income over one to two years, or long-term cover, which typically runs until retirement or when the policy ends (whichever is sooner).

If you’re self-employed or your employer only provides statutory sick pay, income protection could prove especially valuable.

Next steps

It isn’t always easy to know which protection products and amount of cover you need. Getting some financial advice can help you make the right decisions, so you can rest assured your family will be protected whatever life throws at you.

Find out more from our dedicated support team based in London by calling us on 020 7246 1111. Opening hours are Monday to Friday 9am to 5pm.

¹ Financial Conduct Authority – Financial Lives May 2024 survey

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The value of investments, and any income from them, can fall and you may get back less than you invested. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.