5 dangerous protection myths that could really jeopardise your wealth

Research by Nationwide reveals that 60% of people go to work when ill because of financial worries. Furthermore, a third ignore doctor’s advice because of money concerns and continue working even when they’re worried about serious illness.

While this is alarming enough, the research also suggests that a quarter of people would only last a month financially if they couldn’t work after being diagnosed with an illness.

As clients of HarperLees, it’s likely we have discussed the importance of having a financial safety net and putting cover into place to ensure you can maintain your lifestyle if you cannot work.

It’s not just about covering the possibility of sickness, as it’s also essential to ensure loved ones will be supported financially so that they can maintain their lifestyle should the worst happen to you.

That said, if you or someone you know does not have the right financial protection, it could be because they have heard the misleading myths that all too often exist around taking out the appropriate cover.

Read on to discover five of these myths, how they could put the financial security of loved ones at risk, and why they don’t stand up to scrutiny.

1. “Protection products are too expensive”

One of the biggest objections to taking financial protection, whether it’s life cover or to provide an income during an illness, is cost. Often though, many people assume it will be more expensive than it is..

For example, research by Legal & General questioned more than 2,000 millennials about the monthly cost of life cover for a 30-year-old non-smoker to provide a cash sum of £100,000, over a term of 30 years.

The median guess was £23 a month, with almost a quarter of respondents saying they thought it would be more than £50 a month.

The actual cost per month, according to the insurance provider, was just £7.27. While the cost of taking out life insurance, critical illness cover or income protection may be less than you thought, you should always ensure that the policy is right for you and that it’s the most cost-effective available.

This is something we would be happy to confirm.

2. “I don’t need financial cover”

A particularly dangerous myth about financial protection is that it’s unnecessary. However, as Covid has taught us, we never know what tomorrow holds.

While we routinely protect our home, car, and pets because we want to receive a payout when the unexpected happens, many people don’t protect themselves or their income. This could result in you or your family facing financial hardship if you die or are unable to work after being diagnosed with a serious illness.

As a result, your family home might be lost, or loved ones may not be able to maintain their lifestyle. It’s worth remembering that even if you or someone you know does not have dependants, financial protection may still be a shrewd move.

For example, if you are diagnosed with an illness, a lump sum payment from critical illness cover could help provide private medical care, which could result in earlier surgery and a speedier recovery.

3. “I won’t use it even if I had it”

Employers are not obliged to pay sick pay, and when they do, it may only be for a limited time. While it might be possible for you to claim Statutory Sick Pay (SSP), in 2022/23 it’s only £99.35 a week for 28 weeks.

This is unlikely to be enough to maintain your lifestyle, especially when you consider the findings of research revealed in one Independent report. It refers to research by Macmillan Cancer Support, which shows that 83% of people with cancer are an average of £891 a month worse off because of additional living expenses or loss of income.

While you might be able to live on savings, this could significantly reduce your wealth over the long term, and potentially put your financial security at risk. As you can see, if you were to have income protection, it’s extremely likely that you would use it if you were unable to work.

4. “Insurers don’t pay claims”

One of the most common financial protection myths and potentially one of the most dangerous is the assumption many people have that insurers will do anything to avoid paying a claim.

The reality is very different to this myth, as approved financial protection products from regulated providers overwhelmingly pay out.

According to the Association for British Insurers (ABI), 98% of all protection claims were paid out in 2021, totalling £6.8 billion. This equates to £18.6 million a day.

The 98% pay out rate was the same in 2020, and in 2019, it was 98.3%. Interestingly, out of the 1.7% that didn’t pay out in 2019, the most common reason was non-disclosure of information by the policyholder.

Always remember that omitting information in an attempt to reduce your premiums could invalidate your policy. Working with a financial planner to find the most appropriate cover for you is a much better strategy, and one you are not likely to later regret.

5. “My employer’s life cover will be enough”

While many people believe that the amount their employer will pay out if they die will be enough to support their loved ones, the reality could be quite different.

This is because many employer-provided life insurance policies have low coverage amounts, typically paying up to three or four years’ salary. While this may sound like a lot, it’s unlikely to cover ongoing expenses and provide long-term financial support to loved ones.

Furthermore, the cover is likely to only be effective while you are employed by the company. Once you leave the cover lapses, which means having personal financial protection that covers you no matter where you’re working could be a shrewd move.

Get in touch

If you would like to discuss financial protection, or have a friend or family member who might benefit from a conversation with us about it, please email us at info@harperlees.co.uk or call 01277 350560.

Alternatively read our informative guide, which provides plenty of useful tips and information about financial protection.

Please note

This article is for information only. Please do not act based on anything you might read in this article.

Life insurance 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.