Protection is the least interesting part of financial planning and the part most likely to matter. It is also where we find the widest gap between what people believe they have and what they actually hold.
The pattern is remarkably consistent. A family has life cover, taken out with the mortgage and not looked at since. They may have critical illness cover, often at a level chosen years ago. And they almost never have cover for the thing most likely to happen to them: being unable to work for an extended period.
Three different events, routinely confused
It helps to separate what each type of cover is actually for, because the names do not make it obvious.
- Life cover pays out when you die. It protects the people who depended on your income.
- Critical illness cover pays a lump sum on diagnosis of one of a defined list of conditions. The list matters enormously and varies between insurers.
- Income protection pays you a regular income if illness or injury stops you working, usually until you recover, retire, or the policy term ends.
Most households are reasonably covered for the first, patchily for the second, and not at all for the third. That ordering is close to the reverse of how likely each event is during a working life.
Why the gap exists
Partly because life cover gets sold alongside mortgages and income protection generally does not. Partly because it is easier to imagine dying than to imagine being off work for a year — the first is a single dramatic event, the second is a slow attritional one that people assume they would somehow absorb.
And partly because of a widespread and comfortable belief that an employer would keep paying. Which brings us to the thing worth checking first.
Start by finding out what you already have
Before considering any new policy, find out what your employer actually provides. Sick pay schemes vary enormously: some employers pay full salary for six months, some for a few weeks, some pay only the statutory minimum. Many people are certain they are covered and have never read the document.
The number you want is straightforward: if I could not work from tomorrow, how long would my income continue at its current level, and what happens after that? The answer tells you the size and shape of the gap, and quite often it is a shock.
The same applies to any cover you already hold. Reviewing what is in place usually comes before recommending anything new, and it is not unusual for the review to conclude that you are adequately covered and need nothing further.
The details that decide whether a policy works
The deferred period
This is how long you wait before payments start, and it is the main lever on cost. Set it to match how long your employer’s sick pay would genuinely last — too short and you are paying for cover you would not use, too long and there is a gap you cannot bridge.
How “unable to work” is defined
The most important clause in the policy, and the least read. Cover written on an own occupation basis pays if you cannot do your own job. Other definitions are looser, paying only if you cannot do any job you might reasonably be suited to. Two policies with identical premiums can behave very differently at the point of claim because of this one distinction.
How long it pays for
Some policies pay until you recover or retire. Cheaper ones pay for a fixed period — often a year or two — and then stop, whether you have recovered or not. Both have their place, but they are not the same product and are frequently compared as though they were.
The administrative detail that costs families most
Life cover not written in trust can end up inside your estate, potentially subject to inheritance tax, and typically cannot be paid out until probate completes. That means the money arrives months after it was needed most.
Putting a policy in trust is usually straightforward and costs nothing. It is also one of the most commonly missed steps we encounter — including on policies arranged by people who should have mentioned it.
What drives the cost
Premiums vary more than people expect, and it is worth knowing the variables before you start collecting quotes: your age, your health and smoking status, what you do for a living, how much cover you want, how long you would wait before it started paying, and how long it would keep paying.
The last two are the ones you control most directly. Lengthening the deferred period to match what your employer would actually pay, or accepting a shorter payment term, can move the price substantially. Which is the argument for shaping a policy around your circumstances rather than buying the cheapest row on a comparison table.
A reasonable place to start
You do not need to solve all of this at once. A sensible sequence:
- Find out what your employer would actually pay, and for how long.
- Dig out the policies you already have and check what they cover and for how much.
- Work out the shortfall between your household’s essential outgoings and what would still arrive.
- Then, and only then, consider what to put in place.
Most of that is information gathering rather than decision making, and it is the part people skip on the way to asking what a policy costs.
You can read more about protection and insurance advice, or raise it at a first meeting — which is free and carries no obligation.