Family Protection Insurance

What is Insurance?

Family protection insurances – It’s an arrangement by which a company or party undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

A thing providing protection against a possible eventuality.

Why is it important or needed?

Life insurance is supposed to make sure that anyone who depends on the insured for income or day-to-day support will be financially provided for when the insured dies or suffers an insurable event.

Facts: From the ABI(Association of British insurers) Overall, £3.6 billion was paid out in protection claims in 2015, which means that every day, insurers paid out more £10m to help individuals and their families cope with the financial strains and worries that can be caused by a life changing event.

happy family playing in the outdoors
Type of Product Number of Claims Total value paid (£000) Average Claim Paid in (£s)
Received Paid % Paid Declined % Declined
Term Life Insurance 29,248 28,734 98.2% 514 1.8% 1,545,616 53,790
Terminal Illness 4,022 3,740 93% 282 7% 375,645 100,440
Critical Illness 18,307 17,045 93.1% 1,262 6.9% 1,128,140 66,186
Total Permanent Disability 875 581 66.4% 294 33.6% 37,889 65,213
Whole of Life 65,672 65,664 99.9% 8 0.01% 389,080 5,925
Individual Income Protection1 14,664 13,372 91.2% 1,292 8.8% 131,026 9,799*
Total claims 132,788 129,136 97.2% 3,652 2.8% 3,607,396 27,935

These stats here are for claims made and not the total events that occurred, as to claim you need to be insured, if you’re not insured you get nothing.

Who might need it & when?

Those who have children always consider life insurance because without one income and care giving, the child has no means of support. In a two-parent household where one parent is the breadwinner and the other raises the children and cares for the home, both should have life insurance because the loss of either would represent a significant blow to the household finances. Without the homemaker, the surviving parent would have to hire someone to care for the children and the home, which would be a significant expense.

Married couples/ long-term partners with no children and do not plan to have children may not need life insurance. It would depend on how much one relies on the other for financial support and what assets and financial obligations one partner would leave the other with upon death or an insured event.

An individual, who has ongoing financial liabilities and responsibilities, where the ability to meet those responsibilities was impacted by an event.

So couples and individuals need insurance.

What can you insure against?

Consequences of a Death

Funeral costs.

Shared financial liabilities.

  • Mortgage
  • Children
  • School fees
  • Living costs

Future Plans (things you save for)

  • Retirement
  • University fees
  • Holiday home

Loss of Income

  • Redundancy
  • Ill health
  • Accident

Contracting a critical illness

  • Ability to work
  • Cost of treatments
  • Adaption of the home

Financial liabilities

  • Mortgage
  • Car loans
  • Children
  • Living costs
  • School fees
  • Credit and store cards
  • Tax bills
  • Quality of life
hands protecting cut out of family

Types of insurance

  • Level Term Assurance (LTA)
    Amount of cover and term of years is set at the start; the sum assured is paid on the death of an assured during the term of the plan assuming all premiums are paid.
  • Decreasing Term Assurance (DTA)
    Often used with mortgages and other reducing risks, with a fixed term to run. (Cheaper than LTA)
  • Family Income Benefit (FIB)
    Used to support families following the death of a parent or other, the annual benefit is paid tax free to them 1/4ly in advance to meet living costs or ongoing education.
  • Whole of Life Cover (WOL)
    Cover is till death whenever that is, the sum assured can be fixed or indexed, used for funeral costs/tax liabilities/inheritances and bequests or any other need requiring a lump sum after death of the assured.
  • Over 50’s cover/Funeral plans
    Target funeral costs and are often restricted in levels of cover as these aren’t underwritten but are based on age, normally has a waiting period before your fully covered, suited to those with some health issues.

Who might even be uninsurable otherwise?

  • Critical Illness cover(CIC)
    Is payable on diagnosis of a pre defined qualifying illness, including Cancers/Heart Attack/Stroke and a number of others.  Can be used to secure a mortgage, to have a home adapted, to pay for treatment and care.
  • Permanent Health Insurance (PHI) or income Protection
    Is meant to replace earned income lost through illness, injury or accident, maximum benefit is up to 75% of your earned income and is paid to you free of tax.  Lots of employers now don’t offer sick pay or if they do it’s only for a short period of time. and statutory sickness benefit is limited to £88.45pw. if you qualify.

Premiums are based on a number of factors:

  • Age
  • Health
  • Smoker status
  • Term and type of cover
  • Family history 
Family sitting with financial advisor

How does it work?

  • John took out an income protection policy, as his employer didn’t provide any sickness payments other than SSP payable £89.35 per week after 4days continuous to a maximum of 28weeks, with earnings of £16,000 year after deductions John took home £1170.58 per month.
  • John is in an accident, that means he can’t go to work, for 12 weeks, this would mean he will lose £2169.40 over the 12 weeks,
  • If he has an insurance in place that protects an element of his income against such an events.

Meaning he can still pay his way, concentrate on getting back to health and not be worried about the

Bills that didn’t reduce or stop arriving.

He will need medical evidence to support his claim of course.

  • If the accident had been more serious, to a point where he couldn’t return to work at all, after the 28 weeks he needs to claim Employment and Support Allowance (ESA) £73.10pw you need to complete a 16 page points based assessment and depending on the outcome of which there are 3.

Family income benefit is written to a set period of time known as the term. If you die within this agreed period, the plan will pay out a regular tax-free income until the end of the agreed term. Up to age 90.

This is a useful safeguard for families and lifestyles, softening the impact of lost income due to a death, a type of life insurance.  The policy can cover a parent/ guardian/grand parent or other.

With many uses:

The most common one is for parents, who have children. Where the loss of a partner would have an impact on the house hold income, could fund someone to provide care/support whilst the other continues to work.

Other uses could be to provide regular payments for a given period of time.

  • Say an older couple where there’s an age difference, and one is receiving the bulk of the income, that wouldn’t continue in full or part on death.
  • A number of people sharing a portfolio of investment properties, on the death of one they may otherwise be required to sell, to generate enough to buy out the deceased share, this could impact on the others incomes, or could be used to pay his beneficiaries a regular payment.
  • Anywhere where the death of someone has financial consequences that are ongoing and time bound, School Fees/shared Mortgage debt/loans, till someone is independent.

Plans like LTA/DTA and whole of life pay a lump sum (insured amount) on death or diagnosis of a terminal illness. And are often used to insure a fixed cost known at the outset.

CIC is a plan that has many variations in its benefits and needs careful consideration, but basically it covers the insured with a lump sum payable on diagnosis of a predefined condition (Heart attack/stroke/cancers and MS) this is one of the most expensive contracts due to the claims experience of the providers, and the number conditions covered.

Our team is on hand to assist you in choosing the best insurance plan for you and your family. Book your consultation today.