The vast majority of people in the UK don’t have insurance of any kind and they underestimate its importance in building long term wealth. Having something like life insurance is beneficial because it mitigates your risk against negative life events and provides you with money when you most need it.
An insurance policy can be defined as an agreement between an individual or company and an insurance company. The main purpose of it is for the individual or company to receive financial reimbursement if they face a loss.
Insurance comes in many shapes and forms. You can protect your health, home, possessions and travels. Today, I will speak about the financial benefits of Life, Critical illness, Terminal Illness and Income protection insurance.
Life Insurance
A staggering 60% of adults in the UK don’t have life insurance. Some people don’t like facing their own mortality. They don’t believe they can die unexpectedly and some don’t foresee potential issues that can arise for their families after their death.
There are several types of life insurance policies. I will highlight 3 of the most popular.
Term life insurance covers you for a fixed period of time, such as 15, 20 50 years. If you die during that period of time, a lump sum will be paid to your beneficiaries.
The issue with having a fixed term policy is that you cannot predict when you will die and if you die after the amount of years the policy covers, then your beneficiaries will not receive any money.
A Whole life policy covers you for your whole life, no matter how long you live for. An advantage of this is that it pays, whatever age you die. A disadvantage is that whole life policies are more expensive compared to fixed term ones.
Lastly, people can opt to have Joint Life insurance with one other person. With this, the policy will pay a lump sum to the surviving partner and the policy will end after this. The good thing about having a joint policy is that the surviving partner will be left with money. However, the policy only pays money once.
Benefits of Having Life Insurance
A major benefit of having life insurance is that a lump sum is paid to your beneficiaries when you die. Anyone can get life insurance. But if you have a mortgage, kids or people that are dependant on your income, then you should definitely have it. The money will help your family pay for living expenses after your death.
Critical Illness
Critical illness insurance or is a type of insurance where a lump sum is paid to the policy holder in the event they are diagnosed with a specific illness. Those illnesses include things like Heart attacks, Strokes, Brain Injury or Parkinson’s Disease.
The policy can pay out regular income during the illness or a lump sum. The money can help towards the cost of medical procedures, living expenses and medicines.
The policy may require the policyholder to survive a minimum number of days (the survival period) from when the illness was first diagnosed. The survival period used varies from company to company, however, 14 days is the most typical survival period used.
You may not be able to work whilst you are ill, so the money can cover for the loss of income. If you have children, you can be reassured that you can look after them. Most employers and the government have benefits and sick pay but the money may not be enough to live on.
Terminal Illness
Terminal illness cover is similar to critical illness cover in the way the policy pays out if you become unwell. The only difference is that your doctor expects the terminal illness to lead to your death in the next 12 months. The majority of life insurance policies will automatically have terminal illness covered at no extra cost.
You should consider getting terminal illness cover because life happens and you never know if or when you will become unwell. This insurance’s benefits are similar to those for Critical illness and for life insurance.
Income Protection
At present, the UK Government’s Statutory Sick Pay (SSP) is £95.85 per week. Furthermore, 26% of employers pay less occupational sick pay than the Government. This isn’t an adequate amount of money to live on. Furthermore, up to 1 million people are unable to work each year as a result of illness.
A way you can protect yourself is by getting Income Protection insurance. This type of insurance replaces part of your income if you’re unable to work. It pays you the difference between whatever sick pay you are receiving and your regular monthly income.
You will continue to receive the money until you are well enough to work again and it covers a large majority of illnesses. Moreover, you can make multiple claims – so if you have more than one period of sickness, you can rest assured that your living expenses are covered.
You may not need Income protection insurance if you: have savings, are able to survive on money from your employer or survive on money from the Government.
Overall, having insurance can financially protect you and your loved ones in the event of illness or death. There are so many types of policies to pick and choose from. What you need to do is evaluate your life and current circumstances and determine what kind of cover you would need if the worst happens.
