We need to wise up about the value of protection insurance

PROTECTION insurance, which provides a financial comfort blanket in the event of serious illness, is both undersold and under bought.

Whether it is critical illness cover (which pays an agreed tax-free lump sum on a claim being successful), income protection (which pays a regular stream of tax-free income) or even bog standard life insurance, sales are pitifully low.

Why? Well, too few financial advisers can be bothered to sell such cover, preferring instead to look after rich people’s investments and charge them hefty fees for the privilege of doing so.

Meanwhile, providers, a shy bunch, are far too reticent about promoting the cover – resulting in a great chunk of the public (young and old) having no idea that financial protection insurance even exists. The result of all this is that far too many households are ill-equipped to deal with the financial consequences of a breadwinner or home-maker suffering a serious illness. In a nutshell, there is a yawning gap between what households have financial protection wise – and what they should have. This rather disturbing picture is confirmed by an informative piece of consumer research just published by CIExpert, a company which specialises in comparing the individual merits of critical illness policies offered by insurers.

CIExpert asked the public – right across the age spectrum, from Gen Z through to baby-boomers – a series of questions about financial protection insurance. The findings were disturbing.

According to CIExpert, around two thirds of consumers have never bought a critical illness policy – or an income protection plan. Some five and seven per cent respectively have no idea whether they have or ever held such cover. Misunderstanding about how cover works is rife. For example, nearly one in five consumers mistakenly believe the proceeds of any successful critical illness claim must be used to pay off a mortgage – while 19 per cent think any payout is subject to tax (it isn’t).

Two-thirds of people are unaware that premiums are fixed for the term of the policy, which can be 30 or 35 years. Others are oblivious to the other benefits that cover offers – for example, free annual health checks and access to a second medical opinion. Protection insurance should be a key part of our financial armoury – we simply don’t know what is lurking around the corner.