The early part of the year is usually a good time for your client to review their financial strategy. That said, more often than not financial protection is not included in the review, despite it being the bedrock of a good strategy.
According to FTAdviser, 63% of Britons don’t have life protection, meaning their loved ones may struggle to maintain their lifestyle if the worst happens. However, financial protection isn’t only about death, it’s also about health.
Having a financial safety net that provides a lump sum or income if your client is unable to work due to ill health means they are more likely to be able to maintain their standard of living while they recover.
If your client doesn’t have financial protection, it may be because they believe several popular but misleading myths that surround it. Read on to learn more about four of these myths, and what your client really needs to know.
1. “It’s unnecessary”
While your client may be fit and healthy now, one thing the Covid pandemic taught us was that you never really know what tomorrow holds. This is echoed by Cancer Research UK, which reveals that 1 in 2 people will be diagnosed with the condition during their lifetime.
If your client is diagnosed with cancer or another serious illness, they could be very relieved that they had financial protection in place. It could allow them to concentrate on getting better without having any financial worries, something that could otherwise cause them stress when they need it least.
This could also allow your client to return to work when they are fully recovered, instead of rushing back too early due to money worries.
Furthermore, if the worst happens, having life cover in place could allow your client’s family to maintain their standard of living. This might mean, for example, that loved ones don’t have to sell their home at an already difficult time.
2. “Insurers don’t pay out”
One of the most common myths is that providers don’t pay claims. Yet data from the Association for British Insurers (ABI) reveals that 98% of claims made on approved financial protection products from regulated providers were paid out in 2021. This totalled a staggering £6.8 billion.
This level of paying out was not the exception either. The ABI reveals that in 2020 it was again 98%, and in 2019 it was 98.3%. This means that most people and their families received money when they needed it most, as long as the policy holder had bona fide protection.
The money provided may mean that your client receives a much needed income, or a lump sum to pay for private treatment, allowing them to recover more quickly. It’s worth noting that of the 1.7% claims that were not paid out in 2019, the most common reason was for non-disclosure of information.
Working with a financial planner could ensure that your client understands all the information they need to provide, and fills the application in properly to avoid confusion that may cost them dearly.
3. “My employer will continue to pay me”
Many people believe that if they are unable to work, their employer will continue to pay them. If your client is one of them, they may want to check this with their employer, as it will avoid any potential misunderstandings later on if your client is diagnosed with a serious illness.
As you may know, employers are not obliged to pay sick pay, and when they do, it’s typically for a limited period only. While it might be possible for your client to claim Statutory Sick Pay (SSP), in 2022/23, this amounts to just £99.35 a week for 28 weeks.
This could mean that your client has to live off savings or investments, which could quickly reduce their wealth and potentially put their long-term financial security at risk. The latter might be particularly true if your client cannot maintain their pension contributions, which could jeopardise their retirement lifestyle.
It’s also worth remembering that many employer-provided life insurance policies have low coverage amounts that usually pay up to three or four years’ salary. While this may sound like a lot, it’s unlikely to provide long-term financial support to your client’s family, something life cover is more likely to do.
4. “Financial protection is too expensive”
Another common misconception is that financial protection is more expensive than it might be. A study by Legal & General provides food for thought on this, as it asked 2,000 millennials to estimate the monthly cost of £100,000 life cover for a 30-year-old non-smoker, for a term of 30 years.
The median guess was £23 a month, with nearly 1 in 4 estimating that it would be more than £50 a month. The actual cost with L&G was £7.27, although please remember that this is for illustrative purposes only, so the cost of your client’s cover is likely to be different.
That said, it still highlights the fact that financial protection may be a lot less than your client thinks.
Get in touch
As financial protection is there to support your client and their loved ones if something happens, it is vital that they have the right policy for them. Furthermore, they need to be able to understand the conditions of the cover so that your client doesn’t find out later on that they’re not covered for something they thought they were.
This is something we would be happy to help them with. If you or your client would like to discuss how to find the most appropriate and cost-effective cover for them, please contact us on firstname.lastname@example.org or by calling 01904 655 330. We would be happy to discuss it further with you or your client directly.
As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that your clients will receive excellent advice and a high quality service.
This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The information is aimed at retail clients only. Protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.