If you have a family, you almost certainly have some insurance protection in place, to provide them with some financial safety net.
But do you have enough protection – or is your family at risk of plunging into a protection gap?
At Continuum, we know how important it is not just to arrange protection – but to arrange protection that is adequate to suit your needs.
We look to keep your family safe – and avoid the protection gap.
The idea of ‘protection gap’ is defined by financial professionals as ‘the shortfall in the level of cover necessary to maintain the current living standards of dependents’. In other words, it means being underinsured.
It is not uncommon today for a couple to both be working to support both their family and lifestyle. To lose the income from either partner may mean that this would place potential financial pressure on the family. The size of your protection gap is simply the resources you or your loved ones would need if you could no longer provide for them minus the level of cover you already have.
Studies conducted by insurance giant Swiss Re suggest that the UK has an estimated protection gap of a staggering £2.4 trillion, with the average family just 32 days away from the breadline, according to research by Legal and General.
What cover do you need?
The welfare state has led many people into a false sense of security, and a belief that the state would help if the worst happened. There may be help available – but it would be far from adequate.
You need to provide adequate protection yourself – and the first step is to understand exactly what level of protection your family require.
First, there is the mortgage. The average mortgage debt as of quarter one 2019 amounts to £132,633(2). This would need to be paid off, so your family could stay in their home. Then, think about how much they would need every month without your income coming in.
According to research conducted by Legal and General, the average UK household debt is £4,674. This would need to be repaid as well as the mortgage and the regular bills.
It may seem like a dauntingly large sum. But you have not finished yet. You need to consider inflation. A monthly income that seems adequate when children are toddlers will look much less generous by the time they reach their teenage years. You might want to think about how they will manage university too.
When you have worked out how much cover you really need, subtract the amount you actually have. You will probably find yourself looking into a substantial protection gap.
If the gap is large enough to scare you now, imagine how your loved ones would feel if they faced that gap alone.
But there is good news. By looking at the cover you need with help from Continuum, you can probably afford to close the protection gap. You may need several types of cover, but with our expert help, we can help create a bespoke protection plan to suit your needs and requirements.
One of the key questions you must ask yourself. Do you have the right kind of life cover? Most of us opt for term insurance, which ends when we reach an agreed age. We are all living longer. A whole of life policy will mean the cover is there when it is needed, and your beneficiaries could use it to pay off inheritance tax. It could mean closing the protection gap for years to come.
Protection for your health and income
The need for life insurance is well understood, but there is another risk that can propel your family – and you – into a protection gap.
What if you became ill or had an accident that left you unable to work? Many families are better financially prepared for the death of their breadwinner than for health problems.
Critical Illness Cover (CIC) is a form of insurance that can be arranged as a standalone policy, or as part of a wider financial protection policy that includes life assurance. It pays out a tax-free lump sum if you are diagnosed with an illness or had an accident that left you permanently disabled.
But what about the short term? Accident and illness that stopped you earning for months or years could also tip you into a protection gap. Adequate Short-Term Income Protection could help – and most include the option of cover you if you are made redundant.
So, do you have a ‘Protection Gap?
There are numerous factors to take into account when calculating your protection gap. Your age, the number and ages of your dependents, mortgages or any other loans you might have, your Inheritance Tax liability, and even your lifestyle.
At Continuum, we can work with you to understand these factors and calculate your protection gap – and then work with you to find the most cost-effective way to close it, with a bespoke plan to cover your needs.
Don’t let your family fall into the gap. To get the protection they need now, simply call us.
You home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate taxation advice.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Statistics provided by Legal & General