Protection insurance is an umbrella term typically used to describe insurances which provide cover for you and your loved ones in the event of your death or illness, such as life insurance, income protection and critical illness insurance.
These insurances can be summarised as follows:
Life insurance: A lump sum (and in some instances an income) paid on death.
Income Protection: An income paid in the event of being unable to work through sickness or accident.
Critical Illness: A lump sum paid on diagnosis of a critical illness, such as cancer, or on suffering a stroke.
Typically, these amounts are paid tax-free. You can learn more about these and other types of insurance and any tax implications on our protection webpage.
Is life insurance compulsory?
Many people believe they must have certain types of insurance and that it is a legal requirement (or in other words ‘compulsory’) to have these: for example, car insurance, buildings insurance and life insurance.
However, there is only one type of personal insurance cover in the UK that is required by law, and that is motor insurance.
There are some circ*mstances where you may be asked to take out a certain type of insurance in conjunction with another financial product, such as where your home is mortgaged your mortgage lender may require that you arrange buildings insurance. They may also suggest that you take out life insurance (sometimes referred to as ‘mortgage protection’ in conjunction with a mortgage). But this is not the same as it being compulsory.
How many people have protection insurance?
An average of £14.5 million is paid out every day for these types of insurances which shows just how widespread and important they are. The following data provided by the Association of British Insurers (ABI), gives some context to how widespread certain types of protection and insurance are:
Protection:
There were 23.7 million individual term, whole of life, income protection and critical illness insurance policies in force in 2018.
£5.3 billion was paid to 189,000 customers or families as a result of claims on protection insurance policies.
98% of protection claims were paid out, including 97% of term life insurance claims and 92% of critical illness claims. The very high level of successful claims means the vast majority of people who relied on one or more of these insurances received the financial help they needed at a crucial time in their lives.
Motor insurance:
There were 20 million personal motor insurance policies in force in the UK in 2018.
Insurers paid out £22m per day (£8 billion in total) in personal motor claims in 2018.
Buildings and contents insurance:
There were 35 million buildings and contents insurance policies in force in the UK in 2018.
In Q3 2019 the average premium for a combined building and contents policy was £315, compared to £307 in Q3 2018.
82.8% of the total number of claims made were accepted in the 2017/18 period, a slight increase on the previous year.
Travel insurance:
In 2018, travel insurers paid out £399 million for 498,000 claims to travellers who needed help whilst they were abroad.
£209m of this was to cover the cost of emergency medical treatment and £145m for cancellations.
87.6% of the total number of claims made were accepted in the 2017/18 period, a slight increase on the previous year.
Pet insurance:
Around 95% of pet insurance is for cats and dogs.
The average pet insurance claim was nearly £800.
Every day, pet insurers paid out over £2m in claims for ill and injured pets in 2018 (£730 million in total).
The importance of protection insurance
To give you some context of how some of these insurances compare in respect of the value of claims paid out, take a look at this table:
It’s easy to see from this data the prevalence of protection policies in the UK and the importance in terms of the value of claims paid out. The need for protection insurance – whether in respect of life insurance, income protection, or critical illness – cannot be overestimated. To illustrate this further, we can look at the following statistics:
Life Insurance: ONS data shows that of the 304,373 people who died in 2018 in the UK, 62,461 (20%) were 65 or under.
Income Protection: Research suggests that around 15% of people in the UK have no savings at all, while one in three people have less than £1,500 put away, and 44% of people would struggle with the loss of income in the event of being unable to work through sickness or injury within six months.
Critical illness: Research by Cancer Research UK reveals that 1 in 2 people born after 1960 will be diagnosed with some form of cancer during their lifetime. Cancer represents 65% of all critical illness claims.
Summary
You cannot know what’s around the corner for your health, but you can make sure you and your loved ones are prepared financially.
Get in touch if you would like to speak with one of our experienced Protection Advisers. An initial chat is on us, and we can speak with you on the telephone, video conference or in the office (when Coronavirus restrictions are not in place).
This article offers information about financial planning and should not be taken as personal advice.
