Insurance Guide – What insurance do you need?

No matter who you are, how old you are, or how you work, if you live in the UK, you already have insurance.

The NHS? You pay for that via your taxes and national insurance contributions. And if you don’t work yet, you WILL pay for that via your taxes and national insurance contributions.

NHS is just like a Private Health Insurance or Private Medical Insurance policy. OK they don’t pay you money if anything bad happens to you, but they will patch you up and make you all better!

If you have a car, then hopefully you already have car insurance. If you own a house, you probably have buildings insurance and contents insurance.

So why does there appear to be some reluctance to pay for other types of insurances?

My view? It’s because we don’t really know what the benefit of them is, and we aren’t 100% sure what they all do. I’m going to break down the main insurance types in this insurance guide so you can decide what’s most relevant for you.

Insurance Guide Easy Navigation: 

Life Insurance

Income Protection Insurance

Accident Sickness Unemployment

Critical Illness Cover

Health Insurance

Life Insurance Guide

What does it do?

Life insurance, or assurance, provides a lump sum payment to your estate when you die.

Slightly depressing thought isn’t it? But it’s almost certainly going to happen to us all one day.

Who should get it?

  • If you were to die, and therefore you were no longer bringing in an income, would anyone be left worse off?
  • Are you married and have a joint mortgage?
  • Do you have kids that you want to be able to leave a legacy for?
  • Do you have other family members that rely on you for money?

These are the kind of situations were having Life cover can come in very handy. Life cover would pay out a set amount should you die. The money can go where you want it to either via a will or a trust, but it allows you to leave funds for those you leave behind.

You could: 

  • Leave a lump sum to buy loved ones time before they have to get a job to support themselves
  • Clear the mortgage so your partner doesn’t have to sell the house or struggle to pay the mortgage
  • Leave a fund that covers their university fees or helps them get on the housing ladder
  • Provide an ongoing income or a lump sum of money to be used to help relatives that rely on you for money each month

Real life examples

Imagine a fairly standard TV sitcom type family. Husband, wife, 2 kids, dog, house. The wife is the main bread winner and brings in 70% of the net monthly income earning £50,000. The husband bringing in the remaining £21k via a part time job.

They have a mortgage of £250,000 which costs £1,300 per month, and are currently saving for their kids’ university tuition fees.

Then wifey has an unfortunate, fatal accident involving a tractor driven by an escaped sheep that’s on the run from a farmer. (or something that makes more sense).

Option 1

Husband can no longer afford the mortgage on his own, so has to go back to work full time, but now needs to rely on family to help look after the kids. Eventually, he realises he has to sell the house just to be able to pay for food and stuff. The kids have to take out as much debt as they can to fund their further education.

Option 2

Husband uses the money from the Life insurance to clear the mortgage, which massively reduces the outgoings each month. With the remaining money from the insurance policy he sets up funds for the two kids, so their education is covered. By taking on an extra shift at work life continues on as it did before.

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Income Protection Insurance Guide

What does it do?

Income protection pays out a sum (usually 50 – 75% of your current salary) each month if you get diagnosed with certain long-term conditions and can no longer work.

These payments can last up until retirement age or for any time sooner. So, chances are you’re in a pretty serious situation if you find yourself unable to work ever again.


Who should get it?

Honestly, pretty much all of us.

The average UK employee has enough savings to last only 32 days if their income stopped completely. If you’ve got a bit more in savings, then calculate how long it would last you if you stopped receiving any kind of income.

This is one of those insurances you really hope you waste your money on and never have to claim on it. The most common causes of long-term work absence are stress, acute medical conditions (cancer and heart issues being the biggest), mental ill health and musculoskeletal injuries.

None of which sound like fun.

But as there is around a 30% chance that we will suffer from a long-term critical illness or disability, and the average age of claims with one insurer being 42 years of age. Calculate what it would be worth to you to know that you would receive an income sufficient to pay your bills for the next 23-28 years… and there’s a 30% chance you might need it.

Suddenly doesn’t seem like such a bad idea does it?!


Real life examples

A 34-year-old Letting Agent who bought a home a few years ago gets into a car crash on his way to work. The crash causes severe nerve damage and partial paralysis along with several broken bones that leave him unable to work.

His day to day life changes substantially and is unable to return to his job. The monthly income he was receiving from his job disappears and he is unable to earn money from any job on a consistent basis due to the condition.

An income protection policy kicks in after a short delay and removes the stress of paying bills, and instead allows him to focus on getting better.

It may take a few years to get back to work, or it may be a lifelong condition. The Income Protection policy will pay out up to retirement age the sum of £1,500 per month, or nearly £600,000 over the term of the policy.

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Accident Sickness Unemployment Insurance Guide

What does it do?

This is a very similar product to Income Protection. It pays out a monthly sum if you are in an accident, come down with an illness or are made unemployed (clue was in the name really huh?).

These payments usually kick in sooner than Income Protection and generally will only last for up to 2 years maximum.

So just enough time to get yourself back on your feet and get back to work.


Who should get it?

ASU is designed to help plug the gap short-term between jobs. Whether the absence is due to an accident – slipping and breaking a leg, sickness – MRSA that puts you out of action for a year or being made redundant and finding a new job to go to.

If you have no savings and are the sole or main income provider to a household, then you may seriously struggle to meet your monthly obligations even after just a month of not receiving an income.

Remember the statistic above of most people having only 32 days’ worth of savings available. What would you do from month two onwards to pay the bills?


Real life examples

A random banker in a country far away makes some mistakes on his computer and we end up in another recession. Yay.

Your company must make some cut backs and you end up being made redundant. Boooo.

It’s not just your company that’s impacted though, it’s your whole industry. So, you end up out of work for quite a while, unable to get any job as a lot of people are going for the same position.

Fortunately, you had ASU in place, and after only 2 weeks it kicked in and started paying you a monthly sum to see you through. You see others stressed out, making themselves ill, taking on debt they can’t afford just to keep their house and car. Not you though.

After 18 months you find a great new job and the policy stops paying out as you return to work. What’s the chances the first thing you do is ensure you have ASU in place?

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Critical Illness Insurance Guide

What does it do?

Critical illness pays out a lump sum amount if you get diagnosed with one of a list of certain conditions.

These are generally pretty serious conditions but not necessarily life-threatening ones.


Who should get it?

Again, this is something pretty much all of us should have.

In the UK, 1 in 2 people will develop cancer in their lifetime, every 7 minutes someone has a heart attack, and every 12 minutes someone has a stroke.

The likelihood of you being on the receiving end of something terrible is disturbingly high.

This is probably the insurance most similar to house insurance. Except your body is the house in this instance. If something goes wrong with it, this insurance product will pay you a lump sum to help get it fixed or at least give you some breathing room after diagnosis.


Real life examples

A project manager went to see her GP with a pain in her abdomen. After many tests and messing around, the problem was diagnosed as cancer.

Despite starting chemotherapy and radiation treatment, the cancer was aggressive and had spread, and ultimately became terminal. After 11 months she died.

For all involved, this was a terrible experience. But because of critical illness cover, once the terminal diagnosis had been given, she was able to quit work and use the money she received to clear the mortgage she had with her partner and enjoy as much time as she could with her family.

In no way does the receipt of cash make up for any person’s life. But it beats the alternative of being ill and having to work as much as possible in order to maintain the finances of the household and not get to enjoy the last few weeks and months with those you love most.

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Health / Medical

What does it do?

Private Health or Private Medical insurance can cover the cost of using private hospital services and/or make lump sum payments for certain health issues.

This is used to avoid having to rely on the NHS for treatment, but also to potentially make a payment if you break a bone or lose a finger or need dental work. There are quite a few variations of this kind of cover, so depends what’s most important to you.


Who should get it?

This is a slightly more optional insurance. They do vary quite significantly in what they offer, but for the most part they simply give you more options for treatments in private hospitals and pay out if you have some kind of medical issue.

If you are someone who doesn’t like the idea of waiting for the NHS to fix you, then having the option to go private makes a lot of sense. Equally if you want to get paid a fairly decent chunk of change if you break something, or lose something (eye, hand, use of limbs, etc) then PMI could be a good option.

A lot of countries around the world insist on this for all it’s citizens, but in the UK because of the NHS it’s more of a luxury than a necessity.


Real life examples

There you are, enjoying a delish Christmas pudding merrily munching away, when somehow you bite into that lucky coin. Turns out, not so lucky for you.

You manage to break a tooth in half and the exposed nerve causes you agony.


Option 1

You call up to get an appointment with your dentist, but they can’t fit you in for another 4 days. When you eventually get the appointment, they have to book you in separately for the procedure which is another 7 days away.

Once it’s done, you get hit with a bill for thousands.

Option 2

A quick call and you arrange to book in with a private dentist who carries out… whatever dentists do to fix that kind of thing… the same day of the appointment and the whole bill is picked up by your insurer.


Insurance Guide Conclusion

There you have it. A very brief guide as to what the main insurances actually do, who they are most relevant for, and some examples of how they can massively help you if the worst should happen to you.

In an ideal world you would have cover for absolutely every possible eventuality, but the reality is this would end up costing a significant sum of money and may be beyond most of us.

But instead of burying your head in the sand, the best thing to do is speak to a professional and work out what your priorities are, and how you can insure yourself in the most appropriate way right now. You can always add to it further down the line.

Maybe you can’t afford £3,000 per month ASU right now, but wouldn’t £1,000 be better than nothing while you wait?

If you recognise any areas of cover that you would like to discuss covering, then please do get in touch for a completely free initial chat to see if I can help.

It doesn’t matter what your employment status is, how your health is, what your lifestyle or job is… you may not be able to get the cover you want, or that’s available to everyone else, but there’s often a solution out there for everyone… it might just cost quite a lot in some instances.

But doesn’t hurt to find out does it?

Get in touch and let’s start the conversation to see how you can remove the impact of anything awful happening to you in future.

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