The importance of protection

Life is full of surprises and not all of them good. With this in mind, having the right level of protection is place is essential.

The results of a recent survey show that people tend to overlook potential health issues and, instead, think that an early death is more likely than a serious health condition or injury. Statistically speaking though, you are far more likely to suffer from a serious health condition or injury during your working career than you are to have a premature death. As a result, we look at the implications of suffering from a serious health condition or injury that prevents you from working.

This recent survey (Legal and General, 2020) reveals that if people were to lose their income and had to rely on their savings, the average household is just 24 days from the breadline. In some parts of the country, the average household would exhaust their savings in just 10 days. Unsurprisingly, 46% of households see losing their income as one of their biggest worries.

The reason why people tend to overlook potential health issues that could prevent them from works is due to the common idea that "it will not happen to me." Unfortunately, this is not necessarily true. In fact, the odds of being off work due to ill health for a prolonged period of time is higher than most people think. According to research, a 30-year-old male has a 32.4% chance, and a female has a 42.5% chance of being off work for 1 month or more before age 65, due to an illness or injury.

Financial pressures can be a huge strain. When asked what they would rely upon if they could not work, 37% of respondents said that they will rely on their savings. When we assess how long the average households' savings would last if push came to shove, 24 days is unfortunately a lot lower than most people would require. Therefore, it is unwise to make assumptions about your own chances of being unable to work as this could lead to severe financial hardship. Critical illness and income protection could be just as valuable as a life insurance policy.

After these risks were highlighted to the individuals, 69% of respondents said that they would prefer to save for unforeseen circumstances, rather than insure against the risk. Of the respondents who earlier answered that they have no savings at all, 65% said that they would prefer to save for the unexpected.

"When the average household saves £200 a month, it would take them 14 years to save their gross annual salary, 12 years to save enough to live for a year and 4 years to save what they say they'd need to feel financially secure for 12 months."

Changing your mind over protecting against the loss of your income could take some of those worries away. Whilst 1 in 4 think income protection is too expensive, with under 35s willing to shell out £30 per month towards it, what they do not know is that it would take 50 years to save just one year's replacement income at the same cost (based on the average income).

The year 2020 has provided some stark reminders of the importance of having a safety net. Another recent survey (YouGov, 2020), about the COVID-19 pandemic revealed that 46% of the British public fear that their finances will be severely affected by COVID-19. Of the British public, 40% are concerned that they will not be able to pay their bills. As we have seen in 2020, financial hardship can strike when we least expect it.

Everyone goes through different stages of life at different times, but most people share the following life events, which highlight risks that you could be exposing yourself to without realising:

  • Moving out – moving in to your first home is a big commitment, what would happen if you were off work due to illness, would you still be able to pay your rent or mortgage?
  • Changing job – employment can come with protection of sick pay for a period of time, such as six months. When you change job, it is easy to move to a new job that does not provide this level of protection, leaving you exposed to risks that you thought you had covered.
  • House purchase – it is important to ensure that your income is protected to ensure that you can keep up repayments if you were off work to avoid losing your home. Adequate life insurance is also important to ensure that if you were to pass away, you were not leaving your family with debt that cannot repay without selling the house, potentially leaving your family homeless.
  • Marriage/children – you’re probably thinking that this is an expensive enough time as it is. However, have you thought about what happens if you are unable to work or pass away? Would your children be taken care of or would it be a struggle to put food on the table, yet alone provide them with their current standard of living?
  • Remortgage – as you go through life, you may purchase a larger home. It is important to step back and look at your protection at this point to check that you have adequate cover for your higher commitments.
  • Start Business – if you go on to set up your own business, have a think about protecting the most valuable assets to your business, the people. Look at things like key person cover, shareholder & partnership protection and relevant life cover.
  • Higher salary – we all love getting promoted and having an increased income, mainly because it means that we can improve our standard of living. This typically results in spending more. It is important to ensure that as our standard of living changes, that our protection plan takes this into account.
  • Further education – have you thought about protecting the costs of your children’s education? If you are saving to pay for their education in future, have you thought of the impact of not being able to work would have on this plan?


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December 10, 2020
written by:
Dave Huntbatch