Protection Basics

Financial planning tends to focus on accumulation: building savings, growing investments, increasing pension pots. Protection, meaning insuring against things going wrong, gets less attention. It's less exciting to discuss and its value only becomes visible when something bad happens.

But the purpose of protection is precisely that: to ensure that a serious illness, an inability to work, or a death doesn't undo years of financial progress and leave dependants in a genuinely difficult position. The cost of adequate protection is usually modest relative to the financial exposure it covers.

Life insurance

Life insurance pays a lump sum or regular income to dependants on death. The need for it depends primarily on whether others rely on your income. If you have a partner, children, or other dependants who would face genuine financial hardship without your earnings, life cover is a straightforward necessity. If you have no dependants and no significant shared financial commitments, the case is less clear.

Term assurance covers a fixed period, typically until children are financially independent or a mortgage is repaid. It's the most common and usually the most cost-effective form. Whole-of-life policies cover the full lifetime and cost considerably more. For most people, term assurance addresses the core need.

Income protection

Income protection insurance replaces a proportion of your earnings (typically 50 to 70%) if you're unable to work due to illness or injury. It pays out until you return to work, retire, or the policy term ends, whichever comes first.

This cover is underused and under-appreciated. The risk of a long-term inability to work is higher than most people assume. State support through statutory sick pay and Employment and Support Allowance provides a relatively modest income. For anyone relying on their earnings to meet ongoing financial commitments, income protection is often the most important cover they can hold.

The key variables when comparing policies are the deferred period (how long before it pays out, with longer deferred periods meaning lower premiums,), the definition of incapacity (own occupation is broader and more generous than any occupation), and whether it's guaranteed or reviewable.

Critical illness cover

Critical illness cover pays a tax-free lump sum on diagnosis of specified serious conditions, typically cancer, heart attack, and stroke,, though the range of conditions covered varies between policies. Unlike income protection, it pays once on diagnosis rather than as ongoing income. It can be used to clear a mortgage, cover medical costs, or fund a period off work during treatment and recovery.

What your employer may already provide

Getting the right cover

Protection products vary significantly in terms and conditions, and the differences matter considerably when a claim is made. This is one area where independent financial advice is particularly valuable. An adviser can assess your existing cover, identify gaps, and recommend appropriate products from the full market rather than a restricted panel.