Guide to Protection Insurance
For the over 50s, protection insurance choices depend very much upon your lifestyle. If you are in full time employment with a family to support, your protection insurance needs will be very different from your neighbour who is retired or financially independent.
Virtually all protection products are focused upon your requirements when you are in work. They are designed to pay out when certain things happen that would dramatically affect your income and your ability to maintain the lifestyle of yourself and your family.
The reality of longer working lives is driving change as people find it is essential to stay in work as their pension benefits fall short of their everyday living expenses. Equally there are greater numbers than ever before becoming parents in their forties. This means it will become increasingly common for parents to have dependent children, especially those in further education, well into their 60s.
So rather than having thoughts of early retirement, you may need financial protection from loss of earnings to at least age 70.
Protection Insurance is broadly split into two categories
- Policies that pay out when you are alive (covered in this guide)
- Those that pay out when you die (covered separately in our Guide to Life Insurance)
This guide will give you an overview of the different types of protection insurance available, what they cover and what they don’t. It offers you essential information whether you then decide you need advice from a financial adviser or just want to buy a simple low cost product online.
Why buy Protection Insurance?
Official figures (2014) show that around 300,000 people a year fall out of work and into the welfare system because of health-related issues. More than half are over 50 with a third between the age of 55 and 64 (poverty.org.uk 2011). Many suffer financial hardship as a result. Events that may bring about an inability to work such as accident, sickness or unemployment can all be insured against by one or more types of Income Protection Insurance.
You’ll find there are many variations and it is crucial to understand what each is designed to do. Most importantly the payments made under these policies are not subject to income tax, although they can affect means tested State Benefits.
They could appeal to you if you:
- Are aware State Benefit payments would never pay enough to meet even your regular outgoings
- Do not have enough savings to maintain your or your family’s lifestyle for an extended period during which you were unable to work
- At a point in your life when the great majority of your earnings are absorbed by everyday bills, loans and mortgage repayments
Principal types of Protection Insurance
If you need further information you’ll find these links to our guides covering individual types of protection insurance useful:
Guide to Long Term Income Protection Insurance (IP) – covers you if you cannot work due to accident and sickness until you retire
Guide to Short Term Income Protection Insurance (STIP) – covers you if you cannot work due to accident, sickness and unemployment for 1 to 5 years (usually 2 years max)
Guide to Mortgage Payment Protection Insurance (MPPI) – pays your mortgage and some other household expenses if you cannot work due to accident, sickness and unemployment for 1 to 5 years (usually 2 years max)
Guide to Accident Sickness and Unemployment Insurance (ASU) – very similar to STIP above. Pays you a set amount if you cannot work due to accident and sickness (with an option to add unemployment cover) for 1 to 5 years (usually 2 years max)
Other types of Protection Insurance
Please check back soon for our new guides on other types of protection insurance listed below, or sign up to our newsletter for updates:
Payment Protection Insurance (PPI)
Critical Illness Insurance (covered in the Life Insurance section)
Private Medical Insurance (PMI)
Hospital Cash Plan
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