Why is Financial Protection Important?

Taking the time to future-proof your family’s finances can make a real difference to your financial wellbeing and those you care about, both now and in later life.

Nobody can predict your future, but that doesn’t mean you can’t prepare for it. We all insure our cars, the contents of our homes, even our holidays and our pets – almost without thinking. But have you ever stopped to think about protecting your family, your lifestyle and your wealth?

The classic problem with financial protection is that for many people it feels like a ‘waste of money’. You might spend years paying for something that you never use. It takes insight and discipline to recognise that even if you are not seeing an immediate payoff for your monthly premium, if you and your family do ever find yourselves needing the benefits of this protection, it may well be worth its weight in gold. One in every two people in the UK¹ will be diagnosed with cancer at some point in their lives.  This sobering statistic alone demonstrates the importance of keeping your financial protection affairs in order.

Protecting the People that Matter

So financial protection is all about making sure that you, and your family, are protected against the worst financial shocks, such as death, illness, disability and unemployment, for example. Without protection, unexpected events like these can cause families, who are likely already suffering severe psychological challenges, devastating hardship and financial repercussions.

At its simplest, financial protection, might be ensuring that you have enough cash in reserve to look after your family if you cannot earn a living for a few months. Once you get to the more severe shocks, however, insurance tends to play the leading role. There are insurance policies that can help cover or pay off your mortgage, for example, in the event of death or serious illness. There are others that can help pay for your family’s living costs in the event of long-term illness or disability, or even death. Others might be used to help cover medical costs.

What type of protection is right for me?

It’s important that you choose the right type of policy, based on you and your family’s unique needs. Some of the most common types of insurance include:

• Life insurance: this type of insurance provides financial protection for your family in the event of your death. It will provide a lump sum of money to your beneficiaries if you die. This can be used to pay for funeral expenses, debts, or other costs. Life insurance can also help to protect your family's financial future, ensuring that they have the financial resources they need to live comfortably if you die.
• Critical illness insurance: this type of insurance pays out a lump sum of money if you are diagnosed with a specified critical illness, such as cancer, heart attack, or stroke.
• Income protection insurance: this type of insurance pays out a regular monthly income if you are unable to work due to illness or injury. This can help you to cover your living expenses and maintain your standard of living while you are unable to work. Income protection can be a valuable safety net for people who rely on their income to support their families.

Here are some additional things to consider when deciding whether or not to buy life insurance or income protection:

• Your age and health: The older you are and the more health problems you have, the more expensive life insurance and income protection will be.
• Your financial situation: If you have a lot of debt, or if you have dependents who rely on your income, then life insurance and income protection may be especially important for you.
• Your lifestyle: If you are active and have a high-risk job, then you may need a more comprehensive life insurance policy.

In Summary

insurance can be an invaluable financial tool for keeping yourself and your family safe, but it is important to ensure that you have the right policies in place for what you are trying to achieve, and that your overall level of protection is sufficiently comprehensive.

If you are not sure whether or not you need life insurance or income protection, it is a good idea to talk to a financial adviser. They can help you to assess your individual needs and recommend the right type of insurance for you.

¹https://www.cancerresearchuk.org/health-professional/cancer-statistics/risk Cancer Research UK – Cancer Risk Statistics - September 2023

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