Busting the 3 biggest myths of financial protection
Protection can be an essential part of anyone’s financial plan, as it can act as a useful safety net in case the worst were to happen. However, despite the benefits that it can offer, many people are hesitant to take out protection.
According to a recent study published in FT Adviser, two-fifths of homeowners were hesitant to protect themselves. According to the survey, this was principally due to three main reasons: that protection never pays out; that it’s too expensive; and that they don’t need it.
While these three arguments might sound plausible, they quickly fall apart when you look at the actual data. Here is the truth about the three biggest myths around financial protection.
1. “Financial protection never pays out”
The first myth about protection is that it never pays out since insurers can always find legal loopholes to avoid paying claims. This is unfortunately a widespread myth as, according to a study published in FT Adviser, almost half of people believe it. However, like most myths, this idea doesn’t hold up under scrutiny. According to the Association of British Insurers, 2020 was a record year for how much insurers paid out to their customers. The data shows that they paid out £6.2 billion, which is an 8% increase from the previous year. On top of this, the report also shows that 98% of claims were paid out, which should help to dispel the idea that insurance providers always find loopholes to avoid doing so. If you haven’t got protection in place, you might be dangerously exposed to issues such as unexpected illness or accident. If you don’t have cover, these events may significantly disrupt your financial plans.2. “Financial protection is too expensive”
Another prominent myth about protection is that it is too expensive to get cover, which is particularly widespread among younger people. According to a 2018 report by Legal & General, around 9 in 10 millennials overestimated the cost of protection. When asked to guess how much it would cost to insure a 30-year-old non-smoker for £100,000 for 30 years, around a quarter of people estimated that it would cost more than £50 a month. The median guess of the respondents was £23 each month, but even this is around three times more than the actual figure. Data from Legal & General shows that such cover would only cost around £7 each month. Having cover in place can give you more peace of mind to know that even if the worst should happen, your family wouldn’t have to struggle financially. For the cost of only a few pounds a month, you could protect your loved ones from the unexpected.3. “I don’t need it”
The third and final myth surrounding protection is the surprising belief that ordinary people don’t need it, or that only old people should take out cover. Of course, while older people may be more likely to claim, that doesn’t mean the young can’t also benefit from protection. As the pandemic has taught us, the unexpected can happen at any time. Financial protection is designed so that if it does, you have support in place. You may already protect your home, your pets, or your car, so it’s important to look after your most valuable asset – yourself. Financial protection can help you in a variety of scenarios, such as:- If you wanted to avoid dipping into your savings if you were forced to take an extended period off work due to an accident or illness
- If you were diagnosed with a serious and life-changing illness
- If you wanted your loved ones to be able to maintain their standard of living after you pass away.
