In my many years of advising, the one thing that stands out is the opinion people have of insurance.
Life, Critical Illness, Income Protection, Unemployment cover, Buildings & Contents – folk either love it or hate it!
The majority of people thankfully do understand the importance of insurance, but there are plenty that see it as expensive, unnecessary, or even just a “rip off”, with insurers that will find any excuse not to pay out.
That last opinion is probably the one furthest from the truth. Reputable insurance companies will always look for a way to pay a claim. It looks great on their statistics, and at the end of the day you have a contract that states if XYZ happens then they will pay out accordingly.
My next few posts will look at some of the most common objections people have. And so to the first…….
I AM COVERED BY MY EMPLOYER
Great! What a fabulous benefit to receive. But how much are you covered for, and in what circumstances will they pay out, and for how long? In my experience, the majority of people with some employer benefits don’t actually know the answers to these questions.
Death is Service life cover (DIS) is unfortunately becoming rarer as employers are cutting costs. Where it does exist, it typically provides a lump sum equivalent to 2,3 or 4 years annual salary. It would be a mistake to rely on DIS to repay your mortgage for several reasons.
The biggest advantage of DIS is that in the event of your death, your family would receive a lump sum to replace your lost income. But once that money has gone, what happens then?
If you intend to repay your mortgage with it, what happens if:
1) the lump sum isn’t sufficient to clear the debt?
2) your employer withdraws the benefit – it is rarely contractual and so could be removed at any time
3) you change jobs and don’t receive DIS in the new role
4) you have to give up work on sickness grounds.
The last point there should be of biggest concern. Rarely do people simply “drop down dead”. They would generally develop an illness, which over a period of months and possibly years affect their health until they are no longer capable of working and so give up work. Firstly, you’re no longer working so you don’t have DIS any more. Secondly, you are highly unlikely to be able to obtain life cover from an insurance company as you’ve had to give up work on sickness grounds!
Sick pay is another valuable benefit which seems to be on the demise. Years ago, it was common to see people receiving 6 months full pay followed by 6 months on half pay. Again, employers are struggling to fund these benefits so nowadays we’re more likely to see people either receiving a staged benefit, where the length of the sick pay is linked to length of service, or simply no sick pay whatsoever, other than Statutory Sick Pay (SSP).
At the time of writing this (October 2015), you can get £88.45 per week SSP if you’re too ill to work. It’s paid by your employer for up to 28 weeks.
You need to qualify for SSP and have been off work sick for 4 or more days in a row (including non-working days).
Think about that…..£88.45 a week. That’s £353 every 4 weeks. Could you HONESTLY maintain your mortgage payments, household bills, shopping etc on £353 a month?
PLUS, it’s only paid for 6 months. So what do you do then?
Food for thought…..
Of course, there are plenty of insurance products that can address this easily and are more affordable than people think, but we’ll talk about that next time!