Get protected

23 September 2008
There is currently a £2.3 trillion protection gap in the UK, with millions of people putting their family and financial obligations at risk should they die or be unable to work.

This risk is only heightened by the current financial situation and, with unemployment and the cost of living both continuing to rise, it has never been more important to review the amount of protection you have.

Legal & General has highlighted several key life stages when individuals should consider their protection needs.

Bonnie Burns, protection marketing director at Legal & General, says: “People may not realise that they could put their families under enormous financial pressure if they were to die or get ill because bills still need to be paid.

“If people find that their budget restricts the amount of protection cover they can take, then at the very least mortgage debt and bills should be covered. Some protection is better than none.”

1. Starting a new job

When you start a new job your most pressing concerns are likely to be settling in and when your first pay is due, but this is also a good time to think about income protection.

According to recent research from the Yorkshire Building Society, most people would only have £1,000 to live on if their income stream disappeared. To make matters worse, nine out of 10 people have no form of income protection insurance to cover their bills if they were unable to work or lost their job.

However, when it comes to buying income protection, it’s worth seeking independent advice rather than just opting for a policy from your bank to ensure you don’t pay over the odds. Remember also to go for the most comprehensive cover rather than the cheapest.

2. Buying a house

A property is likely to be the most expensive thing you ever buy, and the chances you will pay for it with a mortgage. Which is why, when you do get on the property ladder, you should consider taking out a protection policy to cover your debt should you be unable to work because of illness or redundancy.

Legal & General suggests homeowners consider taking out income protection, which pays a replacement income if you suffer a long-term illness, accident or, in some cases, unemployment.

But you could also opt for life assurance, which pays out a lump sum if you die; critical illness cover, which pays out in the case of serious illness; or mortgage payment protection insurance, which pays a set amount for a period of time if you can’t work.

Experts say income protection should be top of homeowners protection priority list as there are fewer medical exclusions and payments can potentially last for longer.

3. Getting married

Couples that tie the knot should, alongside planning the wedding and honeymoon, also plan to take out life insurance, says Legal & General. This type of protection tends to be relatively cheap, but it only pays out if one of you dies and won’t protect your income should you be unable to work because of sickness, an accident or unemployment.

4. Starting a family

While life insurance pays a lump sum upon the event of your death, family income benefit pays a regular, tax-free monthly income to your dependents from the time of the claim to the end of the plan term. The advantage of this product is that a regular monthly income can be more attractive to families who don’t want the complexity of investing a lump sum payout. Premiums can also be cheaper than life insurance.

5. Expanding family/moving to a bigger house

As your life circumstances change, so should your protection plans. If you decide to expand your family and/or move to a bigger house, then remember to review any existing family income benefit, life insurance and critical illness cover.

6. Divorce

If, down the line, you and your partner divorce then it's important you again review your family income benefit to cover maintenance payments.

You should also review any joint policies and take action accordingly.

7. Approaching retirement

People approaching retirement often find their need for protection reduces, and therefore should take the time to review their existing policies. For example, if you’ve paid off your mortgage then you may find you have less need for life insurance.

It you want to mitigate inheritance tax then a whole of life policy could help, so speak to an independent financial adviser about your options.

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