It’s a common misconception that financial protection doesn’t pay out when you need to make a claim. This belief might put you off using it to create a valuable safety net. Read on to discover some key figures that prove it could be a useful addition to your financial plan.
Financial protection is a term used to cover several different types of insurance that would pay out under certain circumstances, including:
- Life insurance, which would provide your beneficiaries with a lump sum if you passed away during the term
- Income protection, which would pay you a regular income if you were too ill or injured to work until you could return to work, retire, or the term ends
- Critical illness, which would pay out a lump sum to you if you were diagnosed with a covered illness.
As you can see, financial protection could provide you or your loved ones with an essential cash injection when the unexpected happens. The payout may be used how the recipient wishes, from clearing large financial commitments, such as a mortgage, to covering day-to-day expenses.
As a result, you could use financial protection to create a safety net for your family.
If you’ve put off taking out financial protection in the past because you believe you wouldn’t receive a payout if you needed to make a claim, here are five interesting figures that may change your mind.
1. 6% of life insurance claims were paid in 2022
According to statistics collected by Forbes, the vast majority of life insurance claims result in a payout. In 2022, 96.6% of claims were approved.
However, the figures also suggest that just 35% of people have taken out life insurance. So, many families could find they’d be financially vulnerable if there were an unexpected death. It can be difficult to think about how your family would cope if you passed away, but assessing their financial resilience now could potentially help you take steps to ensure their long-term security.
One of the most common reasons life insurance claims are rejected is non-disclosure. It’s important to be honest and clear when you’re taking out any type of financial protection – not providing details about pre-diagnosed conditions or your lifestyle could mean a future claim isn’t upheld.
2. The average life insurance payout in 2022 was more than £73,500
The Forbes data also found that the average amount paid out as a result of a life insurance claim was more than £73,500.
When taking out life insurance, you can choose how much the potential payout will be to suit the needs of your family.
You may choose to link the potential payout to financial commitments. For example, you might want to ensure it’ll provide your loved ones with a way to pay off the mortgage. Or you might want to calculate how it could be used to cover regular expenses to provide stability for your children until they reach adulthood.
If your loved ones might struggle to manage a lump sum, you could also consider family income benefit. Again, your family could claim if you passed away during the term. However, rather than a lump sum, it would provide a regular income to your loved ones for a defined period.
3. The number of people making an income protection claim increased by 9% in 2022
When asked why they haven’t taken out income protection, many people believe that an unexpected event that leaves them unable to work would never happen to them. Yet, it’s impossible to know what’s around the corner.
According to statistics from the Association of British Insurers (ABI), more than 15,900 people made an income protection claim in 2022 – a 9% increase when compared to a year earlier. Of course, the number of people who were affected by an accident or illness but did not have income protection is likely to be much higher.
In total, more than £231 million was paid out to people who were unable to work. The most common claim was for musculoskeletal issues, such as neck and back pain.
4. 9 in 10 people making a critical illness claim were successful
Similarly, the ABI statistics show more than 9 in 10 claims made by holders of critical illness cover received a payout in 2022, with the average person receiving around £66,000.
A critical illness may mean you need to take an extended period off work to recover your health, and a payout could help cover your essential expenses. In some cases, being diagnosed with a critical illness could also affect your lifestyle and the payout could be useful if you need to adapt your home or pay for specialist care.
5. Protection collectively paid more than £6.85 billion to individuals and families in 2022
Finally, proving that financial protection does pay out in many cases, collectively those claiming in 2022 received £6.85 billion. Benefiting from a portion of this money may have helped claimants continue with their lives when the unexpected happens, provide for their families, or allow them to take some time away from work to recover.
Contact us to talk about how to create a financial safety net
Financial protection is just one step you could take to create a financial safety net that provides you with peace of mind. Contact us to discuss how you could improve your financial resilience as part of your wider financial plan, including taking out financial protection if it’s appropriate for you.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
