An Introduction to Protection Insurance By Michael Challiner At Isnare.com Ezine Articles

Everyone wants to do their best for their family and loved ones - but thousands of families have not purchased insurance to provide financial protection should the main breadwinner die or fall ill. This puts the family at risk of being plunged into poverty should the worst happen.

It's not as if there's a shortage of life insurance, critical illness or income protection policies. The problem is too few people are buying them. The insurance industry believes that the insured shortfall in the UK is a staggering 2.3 trillion pounds.

So lack of family protection is clearly a problem. There are two main risks in life: either living too long and dying too soon. It's absolutely crucial to have some cover in place - especially if you have a young family. It's a well to build yourself your own little welfare state because no one else is going to do it for you.

Now is also a really good time to buy as fierce competition within the insurance industry has led to some very competitive premiums. The cost of life insurance has fallen by about 40 per cent in the last five years. So it's never been cheaper.

So, where do you start? Well, before searching for the best offers on the internet or seeing your financial adviser, you should do a little homework. You need to know what type of policy might suit your needs.
Life Insurance - The purpose of life insurance is to provide a tax free lump sum if you were to die. This money is normally used to repay any outstanding mortgage, pay off debts and provide capital for dependents. If you have a mortgage but no dependents, then you don't have to insure for the mortgage as the property can be sold to repay the debt.

There are two main types of life cover - "level" and "decreasing". Level means that the insured sum remains constant - level - during the entire duration of the policy. Decreasing means that the sum insured steadily decreases from the initil sum insured down to nothing by the time the policy terminates. This latter type of policy is used almost exclusively in connection with the protection of repayment mortgages.

Critical Illness Insurance - Critical Illness insurance pays out a tax free lump sum on the diagnosis of a a critical illness, such as a stroke. The types of illnesses covered are always listed on the poilcy and are usually extensive including the big three heart attack, stroke and cancer. There are no restrictions on how a payout can be spent, so you can do anything from clearing the mortgage to paying for private healthcare or investing it for income.

Income Protection Insurance - These policies are designed to replace earned income if the policyholder is unable to work due to illness or accident. Usually, there is a waiting period before the payments commence. Typically these alternative waiting periods are 1 month, 3 months, 6 months or even 12 months. The longer you agree to wait, the lower your premiums will be. However, once the policy starts paying out payments will continue until the claimant returns to work, dies or the policy expires.

Accident, Sickness and Unemployment Insurance - These policies make monthly payments if the policyholder is unable to work because of an accident or sickness or becomes unemployed through no fault of their own. Payments can normally last for up to 2 years but this does vary between policies. There is also a waiting period before which a claim cannot be made, these waiting periods being 1, 3 or 6 months but often once payments start, they are back dated to the first date the policyholder was off work. But again, there are lots of variants, so you need to check ot the policies which are offered to you.

Sometimes these policies are also sold under other names such as Payment Protection or Mortgage Payment Protection policies. With all of them the purpose is to provide short-term assistance, but check for limitations and exclusions.

Do you need it? - Before spending your money on any insurance, check what level of protection you already have and does your employer already provide similar cover as part of your employment package?

You also need to decide how much cover you require. Normally, the minimum should be sufficient to pay off all outstanding debts, as well as providing a lump sum for your dependants. To give you an idea, work out how much you owe on your mortgage, HP, loans, credit cards and then work out how much you’d need to maintain your current standard of living over an average 12-month period less any pension you’d receive and then multiply the balance by 10 years. This will give you a rough guide but you really need to discuss it with an adviser.

Monitoring your decision - Once you've bought a policy please don't forget it. Your personal circumstances will change as you life unfolds. For example, have you changed jobs or do you intend to do so in the near future? Have you moved home ot remortgaged? Has there been a significant increase in your expenses that will need to be covered if you couldn't work? Have you had another child? All these questions need to be asked every year to keep yourself up to date.

All this necessitates that you keep your protection policies under regular review. So it's advisable to revisit your original decision at regular periods to ensure that the cover bought is sufficient for your needs.All this necessitates that you keep your protection policies under regular review. So it's advisable to revisit your original decision at regular periods to ensure that the cover bought is sufficient for your needs.

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