When planning for the unexpected, one of the best ways to absorb financial shocks is to have protection in place. However, recent studies have found that many Brits would prefer to save rather than find appropriate cover.
If the pandemic has made you re-evaluate your financial stability, finding the right financial protection can be essential for ensuring that your long-term plans aren’t disrupted. Read on to find out why prioritising saving over protection can hurt your long-term financial wellbeing.
Many Brits would prefer to prioritise savings over financial protection
According to a recent report by EY, published by the FT Adviser, consumers are significantly more likely to prioritise saving over financial protection.
According to the study, only 15% of Brits claimed that they would list life or health insurance as one of their top three priorities to protect their financial wellbeing.
One of the reasons for this low number is that, according to the report, many people did not understand or trust financial protection. According to the study, a third of Brits thought life insurance was too confusing, while almost half thought that providers would find loopholes to avoid paying for claims.
According to data from the Association of British Insurers, published in the FT Adviser, in 2019 a record 98.3% of claims were paid out. Despite the overwhelming majority of claims being paid out, many people are still hesitant to seek protection.
More than three-quarters of Brits claimed they would rather prioritise saving instead. While this can sometimes be a good idea, it is typically only useful up to a point and can be detrimental to your financial stability in the long term.
Having an emergency fund can be beneficial but saving too much has diminishing returns
If you want to absorb small financial shocks, it can be useful to keep some cash as a financial buffer.
If you’re unable to work for a period of time, this can have a significant impact on your finances. That’s why experts typically recommend that your emergency fund should contain around three to six months’ worth of expenses.
This can be useful for paying your bills while you find another job, as it prevents you from having to rely on expensive credit.
However, an emergency fund is only useful for small disruptions such as being made redundant and having to find new work. If there is a significant disruption in your life, such as a serious illness, a few months’ worth of savings may not be able to cover it.
Even if you saved up twice the amount into your emergency fund than you would normally, this would probably not be enough to cover the full expense that you could incur. Thankfully, you can prevent this by having financial protection in place.
Having insurance can give you full protection and peace of mind
Planning for the unexpected is important if you want to be able to overcome it when it occurs. While nobody wants to dwell on the possibility of an accident or serious illness, preparing for shocks such as these can help you to better absorb them.
If you’re unprepared for financial shocks, you may find that they affect your progress towards your financial goals. For example, if you needed to take money from your pension to pay for treatment, you may have a much lower quality of life in retirement than you had planned.
If you want to cover yourself from financial disruption, there are three main forms of protection you may want to consider:
Income protection
If you want to safeguard your household’s income from short-term disruptions, such as being unable to work due to an accident, you may want to consider income protection. This can be particularly useful if you have ongoing commitments, such as mortgage payments or education fees for children.
If you’re unable to work, income protection will pay you a portion of your salary each month until you get back on your feet. However, while it covers most illnesses which leave you unable to work, it doesn’t cover them all so it’s important to read the terms of your policy thoroughly.
Critical illness cover
Being diagnosed with a serious illness can be both emotionally devastating and have a serious impact on your life plans. Critical illness cover will pay you a lump sum if you are diagnosed with a serious illness, such as cancer or stroke.
You can use this sum to pay for private medical care, repaying your mortgage, or maintaining your current lifestyle if you need to take extended leave from work.
Life insurance
While nobody likes to consider their own mortality, having life insurance in place can be helpful if the worst ever happens. It can be invaluable to know that your loved ones won’t struggle financially, even if you were to pass away.
There are several types of life insurance, such as fixed or decreasing term cover. If you want to find out which is right for you, you may want to seek professional advice.
One of the biggest benefits of protection is that you can gain peace of mind knowing that you’ll be able to overcome any serious disruptions to your life. Once you have it you can rest easy, knowing that illness or accidents won’t affect your progress towards your financial goals.
Get in touch
If you want to protect yourself and your finances from the unexpected, but aren’t sure which form of protection is right for you, get in touch. Email us at office@verve-financial.com or call 0330 320 5048.
