Financial protection

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Saving and investing for the future is always a good idea but more often than not, people don’t have a safety net in place for if things go wrong.  There is a rather old but still relevant opinion that people are happy to insure their house, car or holiday but not the thing that pays for it – themselves. Let’s face it, insurance is not the most exciting topic compared to your new wheels or exotic trip but it is very important part of anyone’s financial plan.

In an ideal world we would all have insurance to cover any unfortunate incident that could have a negative impact on us and our families.  If I had a serious or long term illness and wasn’t able to work, where would the money come from to pay the bills?  You may have a sick pay scheme from your employer but may people don’t, especially the self employed.  What would happen to my loved ones if I died?  These are not nice topics to think about but the consequences of doing nothing could be even more uncomfortable.

Everyone will have their own view on what’s most important to cover and for most people, cost will prevent them from doing anything whereas just doing something could make a huge difference.  So, here’s a guide to likely costs of the most common forms of insurance.  The cost of insurance is based on each individual’s circumstances and health and so it may cost you more or less but this will give you a good idea of what’s out there and what it could cost.

Our menu is based on James & Jenny who are both 35 earning £40,000 each with office based jobs and non-smokers in good health.  They have a mortgage of £200,000 and no cover from their jobs.

Life cover for £200,000

Useful to repay a mortgage or provide a lump sum for your family.

Policy Cost
Pays out if James dies before 60 £12 pm
Pays out if Jenny dies before 60 £12 pm
Pays out if one of them dies before 60 £21 pm

For most couples it pays to take out individual policies as the cover would be twice as much if they both die but the total cost only slightly more.

Critical illness cover for £100,000

Pays out a lump sum if you suffer a serious or critical illness even if you recover and can get back to work.

Policy Cost
Pays out if James is ill before 60 £33 pm
Pays out if Jenny is ill before 60 £33 pm

More expensive than life cover as the chance of suffering a serious or critical illness is much higher than dying before 60.

Income protection (also known as long term sick pay)

If you are ill and not able to work your income is likely to be reduced at best or stop altogether at worst.  An insurance policy that would pay £20,000 per year after 3 months of sick leave through to age 60 (or you go back to work) would cost:

Policy Cost
Pays out if James is ill £37 pm
Pays out if Jenny is ill £37 pm

This gives you a guide of typical costs but only you know what’s most important.  Single people with no dependants would normally look for income protection cover first whereas people like James & Jenny may feel that life cover protecting a mortgage should one of them die is the most important thing.

You can read more about this on The Money Advice Service or speak to a financial adviser.


The small print:

  • Quotes obtained from The IRESS Portal on 30 November 2016

  • Actual costs will depend on your own circumstances and may be higher, lower or not offered.

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