Do you insure your car but not yourself?

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Don't leave your plans up in the air
"If you have dependants or a partner who would struggle to manage without your contribution, or if you’d find yourself in difficulties if you had to go without your salary for a few months, then it’s worth thinking about insuring yourself"
  • | by Felicity Hannah

We're pretty good at looking after our cars in Britain. Mandatory insurance means that our motors are mostly safe,  and a sizeable number of us choose to protect our homes, gadgets and bikes with a decent insurance package as well.

But when it comes to ourselves, many of us don’t bother. I mean, these are your actual kidneys we’re talking about, yet there’s a good chance that you’ve given more thought to whether or not to insure your phone.

Why protect yourself?

Back in 2011, carried out some research that revealed a gap between the insurance people needed and what they had.

We found that 1.5 million households would potentially not have enough cover to clear the mortgage if either partner died. We also found that 18% of people in the UK wrongly believed that their credit card debts would be written off if they died.

If you have dependants or a partner who would struggle to manage without your contribution, or if you’d find yourself in difficulties if you had to go without your salary for a few months, then it’s worth thinking about insuring yourself.

What protection is available?

Typically, people choose between critical illness cover, life insurance and income protection – or a combination of all three.

Critical illness cover pays out a lump sum if you’re diagnosed with one of the life-threatening conditions listed on the policy. The payment would be tax-free and will usually cover the more common illnesses, such as heart attacks, cancer and stroke. However, policies are almost always restricted to a set list of conditions, so critical illness cover usually won’t pay out for conditions that are considered ‘less serious’  – like back ache – even if they stop you going to work.

You can insure yourself for things like that with income protection policies, which typically pay up to 70% of your income for either a fixed period or until retirement. The more comprehensive or lasting the cover you want, the more it will cost, but there are some very affordable options.

Finally, life insurance pays out a lump sum to your family if you die. You can also arrange policies that provide your family with an income for a set number of years – useful if you have dependant children.

There are a few different types of life insurance. Level term life insurance pays out a lump sum if you die during the term of the policy, while decreasing term insurance pays out a sum that reduces over the life of the policy. The idea is that the policy reduces as your mortgage does, so you don’t end up paying for cover you don’t really need.

We spoke to two people who have chosen to protect themselves or their family to find out what motivated their decision.

Life insurance – the stay-at-home mum

Kate, a 32-year-old mother-of-two from Reading, decided to take a few years out from working in public relations when her first baby came along. She didn’t have life insurance at the time as her employer offered death-in-service cover as well as a generous sickness package. Her partner Matt, a self-employed engineer, had his own life insurance and critical illness cover, but Kate didn’t bother taking out a policy while she wasn’t working. But then the cost of childcare changed her mind.

“I was wondering when it would make sense to go back to work and I looked up the cost of putting both my children into nursery,” she explains. “It was frightening that even with the 15 free hours my eldest would get, it was ridiculously high.

“Then I realised that Matt would be totally stuck if something happened to me – he couldn’t afford the childcare on his salary. So I took out just a basic policy that will pay out £50,000 if I died or became seriously ill. It costs around £10 a month.”

Income protection insurance – the guy with the high bills

Ben, 36, is an accountant with no partner, children or responsibilities who lives near Manchester. He admits that he spends most of his relatively high salary and that he hasn’t bothered with life insurance. However, he has a lot of bills, including a monthly payment for his car, a high mortgage and credit cards.

“I’m not the most sensible guy when it comes to money,” he admits. “Everyone thinks accountants must be really careful, but I don’t have any responsibilities so I don’t feel bad about enjoying my money.”

But Ben doesn’t want to find his debt or bills becoming a problem if he became too sick to work, or if he lost his job. He has income protection insurance that would pay out a portion of his salary if he couldn’t work. However, in order to keep the premiums down he insured himself for just 12 months.

“My policy wouldn’t pay anywhere near my current salary because I chose a lower amount to keep the premiums down,” he says. “Also, it would only pay out for 12 months, but that would give me some breathing space.”

Speak to a human

Life insurance, critical illness cover and income protection are complex financial products and you should carefully compare policies to work out what cover is right for you.

If you need to discuss your life insurance in a bit more detail and get some free and impartial advice then you can talk to our partners LifeSearch. There’s no obligation and you can even request a call back online to save you from having to make a phone call.