When working towards your life goals, having an extensive plan is often hugely beneficial to help you along the way. Whether it focuses on investing towards a comfortable retirement or saving to buy a home, a clear strategy often provides clarity and confidence.
As you strive to reach your goals, protection can be the foundation of your financial plan to help you prepare for any shocks that could slow you down. With the right safety net in place, you could be confident that you’ll still be able to meet your financial obligations should, say, you fall seriously ill or become injured.
Similarly, if the worst-case scenario should happen and you unexpectedly pass away, protection can ensure that your family will still be financially supported without you.
Despite the importance of financial protection, many in the UK still fall short and risk falling into the “protection gap”. Continue reading to discover what this is and why financial protection is so important.
The “protection gap” is the difference between the protection you require and the cover you actually have
The term “protection gap” simply refers to the difference between the amount of protection an individual has and the amount they need. This essentially means that a sizeable portion of the UK population would be left financially exposed should the unthinkable happen.
As you can imagine, if you are in your 30s and 40s, you will typically need a more robust financial safety net. You may have a younger family relying on you, a mortgage to pay, and even older relatives who still need some sort of financial support.
However, FTAdviser reports that many individuals in this age bracket fall short when it comes to protection. Indeed, only 44% of people in the UK have enough life cover to protect their family.
In addition, if you were to fall seriously ill, or if you were in an accident and you could not work for an extended period, would you have to eat into your savings to make up for this loss of income?
Without financial protection, you risk falling into the protection gap, meaning you and your loved ones may struggle should one of these events befall you.
Several factors, such as misguided beliefs and some common myths, may contribute to the protection gap
You may also have a misguided awareness surrounding the significance of financial protection and could underestimate the potential impact an unforeseen event could have on you or your family’s lives.
Namely, you may believe that you can rely solely on government support or your savings to help you through a period of financial hardship, but in reality, this may not always be possible. The Independent reveals that 83% of those diagnosed with cancer face average additional costs of £891 a month.
On a similar note, misguided beliefs about the cost of a financial safety net could contribute to the protection gap. You may have decided not to take out protection because you believe it is “too expensive”, although research shows that this is not the case.
Indeed, in a survey from Legal & General, 2,000 millennials were asked to estimate the monthly cost of £100,000 life cover for a 30-year-old non-smoker over a 30-year term.
The median guess was £23 a month, and almost 25% of those surveyed said it would be more than £50 a month. However, the actual cost was only £7.27 a month.
Understandably, you may be looking for ways to cut spending during a period of economic uncertainty such as the current cost of living crisis. Though, as you can see, protection may be much cheaper than you think, and you may be able to provide an invaluable financial safety net for the cost of a TV subscription or one takeaway each month.
You may even mistakenly believe that, should you face financial hardship, your protection provider will do anything to avoid paying out.
But again, this is not the case – research from the Association of British Insurers revealed that the number of new claims paid out has remained consistent at around 98% since 2017.
How could you bridge your protection gap?
As you can see, without the proper protection, you and your family could be unprepared for any unexpected shocks. Though, there are some ways you can bridge this protection gap.
It’s worth considering what you would do if you or your partner passed away. If you both have adequate life cover in place, your family will receive a tax-free payment upon either of your deaths, which could enable your loved ones to maintain their lifestyle, pay for any funeral costs, and pay off any debts or other commitments.
Similarly, if you’re worried that you or your partner will fall ill and are unable to work, you could put appropriate protection in place.
Critical illness cover provides a valuable tax-free lump sum if you’re diagnosed with a serious medical condition such as cancer or a stroke. Income protection will provide you with a tax-free income every month if you’re unable to work due to illness or injury.
This protection could give you the peace of mind that you won’t eat into your savings if you’re unable to work, and that you’ll be able to focus on care rather than worrying about financial concerns.
Above all, we can help you fully understand your protection needs and guide you through the options so you can provide a robust safety net for you and your loved ones.
Ultimately, if you bridge your own protection gap, you could secure your financial stability and resilience, ensuring that unexpected shocks don’t derail your progress towards your life goals.
Get in touch
We can help you find the right financial safety net for your needs to ensure you can bridge the protection gap.
Please email enquire@london-money.co.uk or call (0207) 808 4120 to find out more.
Please note
Note that financial 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. Cover is subject to terms and conditions and may have exclusions.