How to make sure you’re financially protected at every life stage 

Let’s be honest, none of us like to think about dying as it’s too depressing. Figures from mutual insurance company Royal London show that nearly six out of every 10 of us die without a will. It seems that, when it comes to passing away, few of us accept that it will ever actually happen. 

But by putting our heads in the sand about topics that we feel are too morbid, we can leave our family – and our livelihood – at risk. 

Here’s how to make sure that you’re covered should the worst happen – and how to face your fears to protect your finances. 

So, what should we be doing exactly? 

Have you ever considered how you would keep a roof over your head if you couldn’t work due to ill health? 

While we’d all like to take a “it will never happen to me” mentality, being prepared is easier than you’d think – and the peace of mind will be priceless. 

The best place to start is with financial protection policies, which are designed to pay the bills when you can’t. This means you may need different insurance depending on where you are in your life. 

It’s always better to consider this in advance rather than looking back and wishing you’d done things differently. 

The need for protection policies is driven by debt and dependents, usually mortgage and children. As you get older, you’re likely to acquire more of both. 

What does the jargon mean? 

Let’s have a look at some of the terms you’ve probably heard. “Life insurance” is the most well-known form of financial protection. It pays out a lump sum if you die. 

“Critical illness cover” pays out a chunk of money if you get seriously injured or get a diagnosis of a life-threatening illness such as heart attack, stroke or cancer. It’s based on the idea that these things stop you from being able to work for a period and helps you cover your costs while you recover. The payment is tax-free. 

Meanwhile, “income protection” is a type of insurance designed to cover you if you can’t work because you’re too sick. You’ll receive somewhere between 50% and 70% of your salary through regular monthly payments for as long as you need – possibly right up until a set retirement age. 

When you’re starting out 

When you first leave home, you may feel footloose and fancy-free without a partner, kids or mortgage to tie you down. 

Without dependents, and with every chance of a long life ahead, you might not need any financial protection. 

But what happens if you got too sick or injured to work and your income stops? How would you pay your bills? 

Expert Ali Crossley from insurer Legal & General suggests that even the young and single should consider taking out income protection insurance. 

“Unless moving back in with your parents is an option, you’ll still have to pay rent and other bills,” she says. 

The good news is that policies are priced according to your age, general health and the amount you want to receive if you must make a claim – the younger you are, the cheaper it is. 

When you’re looking to protect your family 

When you start a family, you should revisit your financial protection policies as soon as possible. 

Figures from the Childhood Bereavement Network estimates that, sadly, every 22 minutes in the UK, a parent dies, leaving dependent children. In other words, 111 children lose their mother or father every day. 

“You need to make sure you have enough life insurance, so your kids are financially cared for if you pass away,” says Sarah Coles from investment services company Hargreaves Lansdown. 

Many people take out life insurance designed to pay off their mortgage debt if they die, but if you increase the sum insured to more than you owe on the property, you can add enough cash to keep food on the table as well as a roof over the family’s head. 

Not sure how much cover will be enough?

Check out Compare the Market’s handy calculator, which will work out the minimum amount of insurance you’ll need. 

According to figures by brokers LifeSearch (partners of Compare the Market), you’re five times more likely to go off on long-term sick leave than die during your working life. 

For most families, even those who are divorced, the loss of income from either parent due to death or illness would have extremely serious financial implications. 

Parents depend on each other in all sorts of ways that go beyond earning a salary and paying the bills. 

In many cases, the surviving parent would have to leave their full-time job to care for the kids. Or, if they choose to continue to work, the extra childcare needed would become very expensive. 

According to figures from the CORAM Family and Childcare survey, the monthly cost of part-time nursery care for a child under the age of two in England is an average of £138 per week or over £7,000 per year. Wow. 

What’s more, parents must consider the value of their own unpaid labour at home, as the cost of outsourcing it can be eyewatering. 

Figures from the Resolution Foundation show that women spend 28 hours a week doing unpaid work such as cooking, cleaning and taking care of children. 

Some critical illness policies also provide cover for your children. This means that should your child become seriously ill, and you had to stop working as a result, you’d have extra cash to pay your bills. Then you could concentrate on caring for your little ones. 

The good news is that this can be added to an existing policy that you may have taken out when you were younger, so there’s no need to make a new lengthy application when you become a parent. All it takes is a telephone call for the extra peace of mind. 

Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.