Roger Edwards: Personal insurance covers more than doom and gloom

Published on Saturday 25 September 2010 16:30

CAR owners have to have car insurance, home owners are advised to have buildings and contents insurance, and owners of shiny new iPhones might be tempted to insure their addictive gadget.

But for most people, personal insurance, like life assurance, is a terribly dull subject and something that they do not want to even think about, let alone buy.

It deals with subjects such as death, disability and disease. These are things people want to push to the back of their mind as they try to juggle a job with running a home and fitting in a social life.

The reality is that personal insurance, often referred to as "protection insurance", is really about living and financial security and making it possible to continue to enjoy the career, the house and the social life.

In order to make protection more relevant to you, have a go at picking the ten photos that would create an essential representation of your life. The photos would obviously include your partner and children if you have them. Your home, car and the odd treasured possession.

Perhaps there would be a photo of a typical holiday destination, or special home from home or simply a restaurant or other venue that has become an important part of your life. Clothes and other fashion accessories might appear in some top tens whilst electronic gadgets and technology might appear on others. Having collected together the essential ten images, just think for a few moments what it is that allows you to enjoy the real-life experiences these images represent.

Unless you are very wealthy the answer will almost certainly be your salary, and probably that of your partner as well.

Then ask yourself what would happen if you couldn't work any more due to illness, or worse. If your income halved, which of the ten components of your life would you be prepared to stop enjoying. Could you possibly make that choice? Protection insurance can help ensure that you are never faced with such choices. So rather than being about those gloomy subjects of death and disability, it is really about making sure you can maintain the lifestyle you value no matter what happens.

There are several types of protection product available and they each cover slightly different eventualities. When faced with such a set of products they can come across as quite complicated, which is why it is often worth speaking to an independent adviser.

But the basic need is to ensure that income is covered in the event of death, being unable to work through sickness and, ideally, unemployment and to provide enough of a cash amount which can be used to clear debts such as the mortgage, car and other loans.

So what is available?

n Income protection: This cover is designed to replace your income if you are off work sick for a period of time. In terms of protecting the lifestyle represented by those ten photos this is probably the foundation product that anyone, single or with dependents, should put at the top of their financial shopping list.

n Unemployment cover: This does the same job as income protection but pays for a shorter period following unemployment. You might have seen this sort of cover offered within something called an Accident Sickness and Unemployment plan. You can buy it separately, however, and it goes well with the longer-term protection that income protection can provide.

n Life assurance: Quite simply, this can replace your income or provide a cash amount, or both, if you die. If you are single you probably don't need this, but if you have a partner or family it is essential.

The good news is that the cost of life cover is about as low as it has ever been. Even people in their forties and upwards can get more than 100,000 of cover for about 10 a month.

n Critical illness cover: Finally, this product pays out a cash amount if you are diagnosed with one of a list of illnesses. They tend to always include cover for cancer, stroke and heart attack, but some can cover up to 40 different illnesses. Critical illness cover can be used to pay off debts or perhaps just provide a temporary cash alternative to your income as you re-adjust.

When you start to examine the products it does take your thoughts back to quite gloomy subjects. But at all times it is important to keep in mind that image of the lifestyle you are protecting as represented by those ten photographs. You earn the income that makes these important things a reality. Once you realise this you can overcome the fact that protection is a bit of a dull subject and set about protecting yourself and the income you earn.

Roger Edwards is proposition director, Bright Grey and Scottish Provident