What are Protection Insurances? and what is Life Insurance?

Life insurance vs Protection insurance ?

Are you wondering what the difference between Life insurance and Protection insurance is? What Life insurance covers? or if you even need Life Insurance? you’re in the right place.

This short article aims to help answer the questions… What is Protection insurance? What is Life insurance? What is the difference between Life insurance and Protection insurance? Do you need them? and how do you get cover.

There are zero broker fees involved with our Life Insurance appointments or our advice, and there is no commitment to takeout a policy during or after the appointment. Let us answer any questions you have now or after reading the article below by booking an appointment using the button below.

Protection insurance is a general term typically used to describe insurances which provide cover for you and your loved ones in the event of your death, illness or injury. These include things such as Life insurance, Critical illness cover, Income protection insurance and Family income benefit to name a few.

Below we explain what they are, how they protect you and your family, how they pay out and what the benefits of having Life insurance and Protection insurances are.

Decreasing Term Assurance (protect a mortgage)

This type of Life insurance cover pays out a lump sum upon the policy holders’ death. The level of pay-out (the amount received) decreases in-line with the policy holder’s mortgage (IE as the mortgage decreases so does the value required to repay that mortgage). Premium payments do not decrease during the term, and are paid for the duration of, and cost determined by, the outstanding mortgage amount and mortgage term. Essentially this policy ensures that the mortgage debt is cleared upon death and allows peace of mind that any surviving partners are not left with mortgage repayments on a sole basis in the absence of a potential bread winner.

For example, if one of the policy holders dies, the household income could potentially decrease or stop altogether. The person left, if they have children to care for, may be unable to maintain their usual level of employment or may not have been the main income earner. The lump sum can be used in whatever way best serves those left behind.

It can be a single (one name) or joint policy (for a married couple).

Life insurance helps give your family financial protection should you pass away within the policy term. It lets you leave a lump sum behind – helping your loved ones maintain their living standards or pay mortgage costs, potentially meaning they can stay in the family home when you’re gone and that financial  struggles do not add to your burden at an already difficult time.

Level Term Life Assurance

Level term life insurance is a policy designed so that the lump sum pay-out stays the same throughout the policy term unless any changes are made to the policy. This is regardless of whether the insured person passes away on the day the policy starts or the day before the policy ends. In other words, the amount of cover remains 'level’. This policy could be used (though not exclusively) for clients who have an interest only mortgage or buy to let properties that they wish to protect, it would ensure that they have the same amount of cover as when the policy was taken out. It’s also a good way of budget planning due to the unchanging nature of both the premium payments and the death benefit throughout the policy's term. The price of the premium is directly correlated to the value of the chosen cover.

Critical illness cover

Critical Illness Cover (CIC) is an insurance policy that helps protect you if you become critically ill during the policy term. Unlike a Decreasing Term Assurance the policy is not linked to your mortgage. Instead the Premium is linked to the level of cover (pay-out) you wish to have.

It pays out a tax-free lump sum that you can use however you like – whether that’s to help cover health-related costs, monthly expenses, or lost income while you get better. This can also be used to protect a mortgage so that you will receive a lump sum to pay off the debt upon a diagnosis. It’s always recommended to take this cover out while you are young and healthy as the costs are considerably less the younger we are. This policy can ensure that you don’t face compounded financial hardship during extremely difficult circumstances.

Income Protection

This policy can help support you with a monthly payment if you’re ill or injured and can’t work. It pays a proportion* of your lost earnings, which can contribute to covering your monthly outgoings, paying essential bills like your mortgage or rent, as well as utilities and food.

It doesn't cover you if you're unemployed or made redundant.

When deciding if you need Income protection insurance, you should consider your savings, how long your employer will continue to pay you, and what state benefits you may get after any employer payments stop. Statutory sick pay (at time of writing 05/01/2024) is £109.40 per week**.

*The % of your income that is covered/will pay out is determined by the level of premium that you choose based on your budget & affordability.

**Statutory sick pay (SSP) is paid by your employer if you’re too ill to work, for up to 28 weeks. You must qualify however to receive SSP (www.gov.uk/statutory-sick-pay)

Essentially this policy allows you the peace of mind that you could stay in your home if you are unable to work without the added stress of meeting your monthly mortgage payments and bills and can act as a huge relief if faced with this during your working life.

Family Income Benefit

Family income benefit insurance is a type of term life insurance that will give regular financial support to the family of a policyholder if they die or are diagnosed with a terminal illness. With monthly pay-outs, it eases the burden of bills, making budgeting more manageable for those left behind or caring for the individual concerned during a time of financial hardship.

Again, the level of cover is determined by the level of premium that you choose based on your budget & affordability. Due to the nature of the policy, it allows affordable protection that will provide for the family upon the death of the policy holder. By placing the policy into a trust it ensures that the funds reach the policyholder’s chosen beneficiary/s as well as avoiding the funds forming part of the estate upon death.