Why life insurance should be a vital part of your financial plan

Why life insurance should be a vital part of your financial plan

Insurance is often overlooked, or seen as a ‘nice to have’, but the reality is that life insurance should be a vital part of your financial plan. And yet, a survey carried out by MoneySuperMarket shows that 60% of UK adults don’t have any form of life insurance.

It’s easy to disregard insurance because it doesn’t necessarily bring you closer to reaching your life goals, but it’s for those moments in life that come out of the blue and catch you off guard. Insurance is there as a safety net to get you back on track when things don’t go as planned.

Recently, a lot of us have learned the extent of how damaging a shock to our income can be. so, although insurance might not be as attractive as investing or other areas of financial planning, it is essential for building a complete and robust financial plan.

Why life insurance should be a vital part of your financial plan

Primarily, insurance is there to help protect you and your loved ones following unforeseen events that impact your financial situation, such as an accident, injury or loss. There are many different types of insurance, and you might not need cover for everything – it entirely depends on your situation.

However, as a general rule, if you have a car, you must have car insurance. If you’re a homeowner, you should have at least buildings insurance, if not contents as well. And, of course, if you’re going travelling, you should have a policy to cover your trip. The recent pandemic has only highlighted the importance of sorting out insurance as soon as you book your trip, and not just leaving it until just before you travel, or not taking it out at all.

So, it’s fair to say we have a collection of general insurances already but what about if something should happen to your health? Ultimately, if your household were to lose an income, whether that be to accident, illness or death, would your financial situation remain the same? Research by the Association of British Insurers reports that more than 1 in 6 working households would not receive help from the state and see their income drop by a third if the main earner couldn’t work.

We talk a lot about the importance of an emergency fund and ideally keeping up to 6 months of income in an accessible bank account at any time. This will soften the blow, should anything happen. However, what happens once these funds have run out; this is where insurance can bridge the gap.

By making sure you are adequately covered and that you have protection should something happen to your health, this should provide you with peace of mind, which is priceless. So, although it might seem like quite an investment at the time, it could save you a lot of stress and worry in the future should your financial situation change further down the line.

And, why do we avoid it

So, if it’s so important, why do we still avoid insurance?

There are three likely reasons for this. The first being that we don’t want to think of a worst-case scenario. But, sadly, life isn’t always plain sailing, so it’s better to have a plan in place that’ll help you weather any storms. Difficult topics to talk about are often the most important conversations to have.

The second being that many think insurers won’t pay out. However, in 2019  a record 98.3% of protection claims were successfully paid out. So you can rest assured that this is a misconception.

And, finally, the third reason is that it’s probably not a top priority. We like to think of our financial goals as stepping stones that get us to where we want to be. So, we’re always looking forward, and we like to see progress. But, of course, to keep moving forward with your financial goals, you need to have precautions in place that stop you from falling back.

Every situation is different; there is no ‘one size fits all’ solution when it comes to protection planning. Our team of expert financial planners are here to discuss your situation and all of the options available. By getting to know a bit about you and your financial situation, we can help you choose the right cover.

If you would like to discuss any aspect of this article or want to discuss your financial plan, then please get in touch with us and speak to one of our financial planners. Our friendly West Bridgford-based advisers are just a phone call or video call away.