Securing your family’s future: protection planning

Safeguarding your financial wellbeing and that of your family has never been so important and we believe insurance – from life insurance to income protection and critical illness cover – is a crucial part of any financial plan. Without such protections in place, your savings, income and home could all be at risk in the event of a significant illness.

But despite its importance, research by Schroders Personal Wealth (SPW) found many people do not make financial protection a priority. A survey of just under 1,000 consumers found people were 20% more likely to have insurance for their pet than to have critical illness cover for themselves. Meanwhile, people were 11% more likely to have phone insurance than income protection.

At the recent “Securing your family’s future: Protection Planning” webinar, hosted by SPW, expert advisers discussed the importance of having the right protections in place. Rew Hassall, Regional Director at SPW and host for the webinar, began by asking panellists for their reaction to the research findings.

Getting the priorities right

Heidi Loughlin, an insurance adviser and motivational speaker who has herself been diagnosed with cancer, was unsurprised by the findings.

She said: “I did not have adequate insurance, but I did for my dogs. When you have an asset that you see every day, something you love, you want to protect it. But a crucial part of this is reminding people how important financial protection cover is for themselves.”

Loughlin had been a police officer at the time of her diagnosis and said she had always thought her workplace cover would be more than adequate to help with any crisis. But she said, while that cover was good, it was not what she needed when she received her diagnosis.

“I was 32 and I got diagnosed with cancer. I had life insurance [through her job] and that was great, but how was I going to contribute to the family pot,” she said. “If I could go back, what insurance would I have had? Income protection. That is what is going to keep the bills paid, the mortgage paid,” she added.

Denise Currie, Personal Wealth Adviser at SPW, said she was not surprised that people were more likely to have cover for their valuables than for their own risks of serious illness or loss of income, because protection policies are often presented to customers alongside the products themselves. “When people go out and buy valuables, like a mobile phone or a car – they will take out the insurance to go with that,” said Currie.

Alan Thomson, Account Manager at Scottish Widows, pointed out that the value of being able to earn a living was enormous and so should be protected. “If you are expecting to work for the next 30-35 years on a salary of £40,000, that totals more than £1 million. It is paramount that you protect that,” Thomson said

The key features of financial protection products

Life insurance is a familiar product to most consumers and panellists agreed it was essential for anyone with dependents who would need financial security in the event of the client dying. But, Loughlin’s experience showed, life insurance alone cannot cover the financial risks of serious or protracted illness.

Critical illness cover provides a single lump sum payment in the event of a critical diagnosis. The sum is tax-free and can be used in whatever way the policyholder chooses – paying off the mortgage or paying for home adaptations to help with their condition, covering private medical bills. Currie also pointed out less obvious costs that a critical illness lump sum could help with, for example to pay for childcare costs that arise when a parent is having treatment.

Income protection, meanwhile, provides a regular income if the policyholder is unable to work. “It will continue to pay your bills until you return to work or until you reach an agreed age. And if you go back to work you keep paying the premiums and make multiple claims. The company cannot cancel the policy,” Currie explained.

When is the right time to get protection?

Many people may assume that such policies are only needed later in life, and SPW research showed that less than half of people (45%) thought such policies should be taken out between the ages of 20-35. Thomson, however, said it was never too soon to take out cover.

“No-one knows what lies ahead and if you start as early as possible you will benefit from cheaper premiums,” said Thomson, pointing out that the vast majority of such policies came with fixed premiums meaning clients can lock in a low premium early in life.

Currie added that since the Covid pandemic the health picture across the UK population has changed, with people developing conditions of all kinds, and mental health issues in particular, at an earlier age. Income protection, she said, would provide cover for any condition that might stop you working at any point in their life.

Planning protection around your job

People’s working status was also a key issue and panellists agreed the self-employed were most in need of income protection, as they have no workplace benefits that might help them.

But, as Loughlin’s experience showed, even quite generous cover provided by an employer might not be adequate or as flexible as an individual might need. “Advisers should always speak to their clients about what workplace benefits they have and make them aware that the cost of these will change. And of course, people change jobs,” Thomson said.

Flexibility and choice were also key issues in the discussion. Loughlin emphasised that a critical illness diagnosis did not mean that an active life was over. In fact, such a diagnosis could be the spur for people to do something new, leave their career or fulfil ambitions. A lump sum payment could provide the freedom to do that, Loughlin said.

Protection for a lifetime and for the family

All panellists put a great emphasis on the family dimension of financial protection. Critical illness cover for children, for example, could allow a parent to take time off work if their child received a critical diagnosis. “If your children are ill, the last thing you will probably want to do is work,” said Thomson. Looking further ahead, advisers can even help put financial protection in place to help cover inheritance tax bills.

The final messages from the discussion were not to put off thinking about financial protection. Currie said people should reflect on their plans for their own lives and those of their family. They should think about what an unexpected illness would mean to those plans and ask themselves: ‘Do I have a plan B?’

Speaking from her experience of when she was diagnosed, Loughlin’s advice was even more direct. Having only realised after her diagnosis that she needed more protection she simply warned: “Don’t be like me.”