Protection Basics

Insurance is boring. Nobody wants to think about dying, getting seriously ill, or being unable to work. But these things happen, and without protection, they can financially destroy not just you but everyone who depends on you.

Protection isn't about you. It's about the people who'd be in trouble if your income stopped tomorrow. Partner, children, anyone relying on you financially. If nobody depends on your income, you need less protection. If people do depend on you, protection is non-negotiable.

Life Insurance

Life insurance pays out a lump sum when you die. The purpose is replacing your income for your dependents. If you've got a partner and children who rely on your salary, and you die, life insurance gives them money to live on while they adjust to life without your income.

How much do you need? A rough guideline is 10 times your annual salary. If you earn £40,000, that's £400,000 of cover. This isn't a precise science—it depends on your mortgage size, number of dependents, other income sources, and what your family would need to maintain their lifestyle.

Term insurance: Covers you for a specific period (usually 20-25 years). If you die within that term, it pays out. If you don't, it doesn't. This is cheap because most people don't die during the term. It's what most people need.

Whole of life insurance: Covers you until you die, whenever that is. Much more expensive because it will definitely pay out eventually. Useful if you want to leave a guaranteed inheritance or cover inheritance tax, but most people don't need it.

Critical Illness Cover

Critical illness pays out a lump sum if you're diagnosed with a serious illness—cancer, heart attack, stroke, multiple sclerosis, and dozens of other conditions. You're still alive, but you might not be able to work for months or years, and you might have extra costs for treatment or care.

This is more expensive than life insurance because the chances of claiming are higher—you're more likely to get cancer and survive than to die suddenly. But the financial impact of serious illness can be worse than death in some ways. You've got ongoing living costs plus medical expenses plus potentially lost income.

Critical illness cover lets you focus on recovery without immediate financial panic. Pay off the mortgage, cover lost income, fund treatment. It removes the financial crisis from an already terrible situation.

Income Protection

Income protection pays you a monthly income if you can't work due to illness or injury. It continues until either you can work again, you die, or the policy term ends (usually when you reach retirement age).

This is arguably the most important protection for working-age people. You're more likely to be unable to work for months due to illness than you are to die. If you're off work for a year with a serious illness, statutory sick pay (£109.40 weekly) won't cover your mortgage, let alone everything else.

Income protection typically pays 50-70% of your salary. Not full salary—the idea is you can maintain a basic lifestyle but there's still incentive to return to work when you're able. It usually has a deferred period (4 weeks, 13 weeks, or 26 weeks) before payments start. Longer deferred period means cheaper premiums.

What Does Your Employer Provide?

Many employers provide death in service benefit—a multiple of your salary (often 2-4 times) paid to your family if you die while employed. This is useful, but it only covers you while you work there. Change jobs or lose the job, and it's gone.

Some employers provide income protection or critical illness cover as well. Check what you've got. If your employer provides 4 times salary death benefit and you need 10 times salary of cover, you only need to buy the gap privately.

Don't rely entirely on employer benefits. They disappear if you leave. Have at least some personal protection that moves with you.

How Much Does Protection Cost?

This depends on age, health, smoker status, cover amount, and term length. Rough examples:

35-year-old non-smoker, £300,000 life cover for 25 years: £15-25 monthly.

Same person, £300,000 critical illness cover: £40-60 monthly.

Same person, £2,000 monthly income protection with 13-week deferred period: £50-80 monthly.

These are ballpark figures. Your quotes will vary. But protection is usually cheaper than people expect, especially life insurance. For £20-30 monthly, you can give your family financial security if you die. That's not expensive for what it provides.

Writing Policies in Trust

Life insurance and critical illness policies can be written in trust. This means the payout goes directly to your beneficiaries without going through your estate. Three benefits:

Faster payment—your family gets the money within days rather than waiting months for probate.

Avoids inheritance tax—the payout doesn't count as part of your estate.

Protected from creditors—if you die with debts, the insurance money is protected for your family rather than being available to creditors.

This is free to set up and takes minimal paperwork. If you've got life cover and haven't put it in trust, you should. It's a simple way to make the policy work better for your family.

What If You Have Health Issues?

Pre-existing health conditions make protection more expensive or, in some cases, unavailable. Insurers assess risk. If you've got diabetes, a history of cancer, or chronic conditions, premiums will be higher.

But don't assume you can't get cover. Disclose everything honestly on the application. Withholding information means the insurer can refuse to pay out when you claim, which defeats the point. Better to pay higher premiums for valid cover than cheap premiums for cover that won't pay when you need it.

Some conditions are excluded rather than making the whole policy more expensive. For example, you might get life cover that excludes claims related to a specific condition you have. Read the terms carefully.

Reviewing Protection Needs

Your protection needs change over time. When you first start working, you might not need much—no dependents, low expenses. When you have children and a mortgage, you need substantial cover. As children become independent and the mortgage reduces, you need less.

Review protection whenever major life changes happen: marriage, children, buying a house, changing jobs. Make sure cover still matches your circumstances. Don't keep paying for more cover than you need, but equally don't let cover become inadequate as responsibilities increase.

The Temptation to Skip Protection

Protection feels like wasted money when you don't claim on it. You pay premiums for years, nothing happens, and you think "I should have invested that money instead." This is backwards thinking.

Insurance you don't claim on is insurance that's done its job. It protected you during the years when something could have gone catastrophically wrong. You're not paying for a payout—you're paying for peace of mind and financial security.

The time you discover you needed protection but didn't have it is the worst possible time to realise the mistake. You can't buy life insurance after you're diagnosed with terminal illness. You can't buy income protection after you've become unable to work. Protection must be in place before you need it.

Balancing Protection and Other Goals

Protection competes with saving, investing, and paying down debt for your available money. How do you balance these priorities?

Protection comes early in the priority timeline—after emergency fund basics but before aggressive investing. Why? Because protection ensures that if something goes wrong, everything else you've built doesn't collapse. It's the safety net under your financial life.

That said, don't let protection costs prevent you from saving or investing. Get adequate cover, but don't over-insure. If you're paying so much for protection that you can't save for retirement, you've got the balance wrong. Most people need £50-100 monthly of protection costs, not £300+.

The Brutal Reality

If you die without life insurance, your family might lose the house. If you can't work for a year without income protection, you might exhaust savings and go into debt. If you're diagnosed with cancer without critical illness cover, you're managing treatment while financially stressed about how to pay the mortgage.

These scenarios aren't hypothetical fear-mongering. They happen regularly to people who thought "it won't happen to me." Protection is about accepting that bad things sometimes happen to anyone, and ensuring your family isn't financially destroyed when they do.

It's not sexy. It won't make you rich. But it's genuinely essential if anyone depends on your income. Sort it out, pay the premiums, then forget about it and focus on building wealth. That's how protection is meant to work.