Do you need them or are they just an extra expense?
In fairness, the title of this blog is a little bit of misdirection because the answer to the first question is really simple. It is a very firm, ‘Yes’. You need protection insurance because it is a very dangerous gamble to take if you don’t. Sorry if that is a little blunt but there is no point in beating around the bush on this subject. It may not be nice to think about but without insurance protection you are always only an accident or illness away from potentially dealing with a huge financial crisis. The truth is things do go wrong sometimes so you need to prepare for them if they do.
It stands to reason that you will need to protect yourself and often your loved ones from financial problems should the worst happen. There are some handy calculators available online, but we always suggest you speak to an advisor rather than use one of the online services. This is an intensely personal and private process, so it is better done in person.
How much protection do you need?
Basically, you need to add up your outstanding mortgage, your debts (don’t forget your average credit card bills and so on) and any other significant costs. Get a total for this and then add on any additional things you want to cover. For example, do you want a safety net for your child to go to university with? If so, add around 40 – 50 thousand. How much will a funeral cost? Do you want a lump sum left over? Keep going until you are satisfied with the total.
You can now reduce it by any safe amount. For example, if your spouse contributes financially, then you can probably discuss if you need to worry as much about paying run on bills. Work out what your disposable income is and then arrange to see a professional armed with the rough totals for:
· How much cover you ideally need
· How much cover you need as a minimum to keep your family comfortable
· How much you can ideally spend on your insurance
Once you have these figures you will know where you stand, and you can look at what you need for your particular circumstances.
Protection to think about
· Life Insurance.
This is probably the first thing that springs to mind when you think about protection. Most of us have it and for very good reason. If you have a family that depends on you to pay, or help pay, the bills and the mortgage, then you want to know that they will be left in a good position should something happen to you. How much cover you take will depend on your circumstances but usually the advice is to at least cover the cost of paying off the mortgage on your property and any other significant debts. However, while life insurance is always a good idea, if you are a single person with no dependants then you will not need anywhere near as much cover as someone with children.
· Critical illness & Income Protection.
It is scary how many people we talk to about mortgages who do not have enough cover, or no cover at all, if they become critically ill and cannot work. In the modern workplace where contract work and self employment are commonplace it is almost as important as life insurance. Once you have worked out the numbers your adviser will be able to suggest a suitable solution. Some life insurance policies contain a critical illness element, but it often needs topping up to be fully effective.
· Key worker protection for your business
Again, this is an often forgotten area of cover. Many of us are self-employed or employed by small, limited companies, these days. Essentially this means that without us the business stops operating. If you need to go on long term sick leave, then key worker insurance will bolster your finances until you are back on your feet.
· Property, possessions, tenants, and pets
Damage to property can be a very expensive problem which is why it is usually mandatory for homeowners. When it comes to your home and possessions it simply isn’t worth the risk from accidental or criminal damage. Trying to pay your monthly bills and also find thousands for repairs or replacement possessions is not going to be easy.
Landlord insurance is a must if you lease property. Again, you need to feel secure that any accidental or malicious damage will not result in you struggling or needing to take on further debt for repairs. Just to bring a property back to rental ready can require thousands if there has been damage to the home.
Speaking of things that can cost thousands, if you live with a furry friend, pet insurance is a relatively low-cost item that could save on vet bills. A simple broken leg will cost a lot to mend, and an ongoing illness can be very costly indeed.
When it comes to protection it is best to take a holistic approach. Ideally you want to be in a position where whatever comes along you know there will be a financial safety net to either cover you or help you through until things are back to normal. So, are they just an unneeded expense? Well, you decide. Take a moment to consider what would happen if any of the above scenarios occurred. I think you will agree that protection insurance certainly should be a part of your monthly outgoings because the cost of not having them could be disastrous.
Do speak to a professional though to make sure to get the right cover.