Simon Read: In need of protection? Don't jump in and fall for the wrong insurance cover


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The Independent Online

Look, I know you don't want to talk about this – I'm not all that comfortable discussing it myself – but if you have financial responsibilities then you really should think about protecting your family.

Why? Because you don't want to leave them with a money mess if a breadwinner ends up being unable to work or dies. Let's face it, if the latter happens and there are no contingency plans in place, then those left behind could end up with a financial headache, as well as heartache.

I'm not trying to scaremonger or persuade you to splash out on insurance you don't need or can't afford. All I know is that having plans in place to ensure that my family will be able to afford their current lifestyle if something happened to me gives me some comfort.

We hope that money spent on life insurance or other protection proves to be money wasted. But, you know, just in case... a few quid a month can offer some peace of mind.

Oddly enough it seems people are more likely to protect their pet than themselves. Research from NFU Mutual shows that while 37 per cent of dog and cat owners have insured their pets against accidents or illness, only 34 per cent have arranged insurance for themselves.

I understand if you put your pet's importance above yourself, but what about your family? That's what we buy protection for, to give loved ones a financial safety net.

Right. Hopefully you're still with me now we've got over the difficult bit, that of raising the issue. Onto the confusing bit, deciding what kind of protection is right. I faced the problem when I became a father 13 years ago. I wanted life cover, I just didn't know what type to get. There were – and still are – lots of different options. Confused? You bet I was.

But I'm not the only one. Research by protection specialists LifeSearch last month shows that there's still a huge amount of confusion out there, even among people who have decided to take out protection.

In fact nine out of 10 people who contacted the firm looking for cover ended up buying a different type of policy than the one they asked for.

That's because most people simply assume they should get life insurance which pays out a lump sum if they die. But there are other options which may be better, or cheaper.

Research by insurance giant Aviva suggests that one in 10 people could end up with the wrong type of protection. While only four out of 10 people read life-insurance documents properly to check the cover is correct, one in 10 doesn't even give them a cursory glance.

In short that means they could be paying out for something that is not really what they wanted. Of course, none of us looks forward to the chore of poring over some detailed, financial document. But you don't even need to do that yourself. There's plenty of advice around to help you choose the right kind of protection.

"Most people don't realise they can benefit from advice until they've received it," says Tom Baigrie of LifeSearch. "For instance, income protection is arguably the most important insurance because it replaces the one thing most need most, our incomes. Yet 10 times as many people buy life insurance, simply because it is cheaper."

Robert Morrison, chief underwriter for Aviva, says: "Unfortunately people don't always understand the different types of insurance cover.

"But it's fundamental that when people take out protection insurance – be it critical illness cover, income protection or life cover – that they understand what they are buying and that it's a policy that suits."

The company's research shows people are particularly confused about critical-illness cover. Four in 10 confuse it with income protection, incorrectly believing it will pay an income if you're too ill to work.

But you really don't need to worry about being confused over different plans. Instead the question to ask yourself is what do you want to ensure happens to your family if you die or can't work anymore. Do you want to ensure that all your debts are paid off? If so you want a policy that pays out a lump sum.

Or do you want to ensure your family doesn't face financial hardship if someone bad happens to you? In that case you'll probably want a policy that pays a regular income to replace the lost one. Once you know what you want, you simply need to ask an expert what's best.

"One of the most common questions advisers ask people is whether or not they want the cheapest option, or the best value-for-money solution," says Kevin Carr of Protection Review.

"Tips such as buying single-life plans and putting policies in trust can be a better move. However, most people don't know about these issues. An adviser can add value, without increasing the cost."

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