The financial planning journal

60% risk losing millions, why life insurance matters

17 May 2021

Your most important asset isn’t your house or your pension – it’s you.

You wouldn’t dream of not taking out home or car insurance, and you’d probably even feel fairly nervous if you didn’t purchase travel insurance for your holiday. When it comes to our most important asset though, the majority of us don’t protect it at all!

To illustrate how much you make over a lifetime: if we take the average UK annual earnings of £27,000 and increase this, in-line with inflation, across 50 years of work, this results in lifetime earnings of over £2.2 million. If you are earning closer to £50,000 or £60,000 a year, you will instead be approaching £5 million.

You are undoubtedly the most important asset you have.

Why bother with life insurance?

Now, I’m sorry to get morbid here but we have to be realistic. Unfortunately, one in two people will now get cancer in their lifetime and, of those diagnosed, 64% will be under 75, so this is a really important consideration for your financial plan.

The Institute and Faculty of Actuaries’ carry out a continuous study into mortality and illness across the UK, which provides a rich source of information to draw conclusions from. When you consider the data, it should act as a significant reality check. Believe it or not, before reaching the age of retirement, a couple in their 30s have a:

  • 59% chance that one of them will be off work for longer than two months due to an illness.
  • A 27% chance of suffering a serious illness that could be long-term or debilitating.
  • A 9% risk of one of them dying.
  • A 67% chance of any one of those three things occurring. 67%!

Ensuring you have the right level of life insurance, income protection and critical illness in place for your circumstances is just as important as putting enough money in your pension.

Many people rarely consider whether a workplace death in service policy not only covers their mortgage but will also be enough to ultimately replace the earnings they would have contributed to the household. In addition, many don’t realise that their corporate income protection will often only cover a portion of their net income, usually 50-60%. So, how would they fund their pension if they were to get sick?

It’s really important to carefully consider your financial objectives and what the risks to these are. You can then look for the right combination of policies to ensure as little financial disruption as possible will be caused should one of these risks come to fruition.

You really are your most important asset and if it’s not you, it’s probably someone else in the family, so make sure to protect yourself over and above anything else.

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