Many households have bolstered their financial defences with the purchase of protection insurance during coronavirus – with sales up by a quarter
The coronavirus pandemic has caused many households to bolster their financial defences with the purchase of protection insurance.
According to broker LifeSearch, purchases of financial protection cover since lockdown in March are 25 per cent ahead of the equivalent period last year. It says this has been triggered by consumers thinking about their mortality and adopting a ‘safety first’ approach to their household finances, brought on by fears of Covid-19.
With ‘critical illness’ policies, a tax-free lump sum – set at the time cover is purchased – is paid when someone suffers a serious illness, such as a stroke or heart attack.
Sleeping easy: Nick and Stacy Morrow took out cover for their family in case either couldn’t work
By contrast, ‘income protection policies’ pay a regular income until the policyholder is fit enough to go back to work or retires. The income is again tax-free. Such insurance is often bought alongside life cover, which pays out on death. None pay out as a result of redundancy.
Though some insurers have been criticised for refusing to pay out on business interruption cover during the coronavirus crisis, financial protection providers have not faced the same criticism.
Tom Baigrie, chief executive of LifeSearch, says: ‘Life cover should pay out if you die from Covid-19.
‘Critical illness cover should pay out if the virus leads to a serious condition that is covered. As for income protection, a payout is not based upon what condition you are suffering from, but whether or not you can work. If you can’t work long-term, a claim should be paid.’
Protection insurer Zurich says it has already paid £4.5million of coronavirus-related claims it has received. It has also put in place measures to ensure customers whose finances have been adversely affected by lockdown can maintain cover if they are struggling to pay premiums.
Roy McLoughlin, a director of wealth manager Cavendish Ware, believes the Chancellor’s use of the term ‘income protection’ in his initial response to the pandemic in March helped focus consumers’ minds on the need to safeguard their family finances.
He says: ‘The furlough scheme is one big income protection scheme. The longer the pandemic has lingered, the more time people have had to examine their own financial predicament and mortality. For some, it’s a natural progression to consider income protection cover.’
The Morrow family, from Milton Keynes, in Buckinghamshire, recently ensured their finances were resilient after buying their three-bedroom council home under the ‘right to buy’ scheme. They used the opportunity to buy cover with Legal & General that will pay out if either teacher Stacy or school maintenance manager Nick die or suffer serious illness.
Stacy, 35, and Nick, 37, have three children, Mia, 12, Sonny, seven, and Poppy, two. ‘We’ve bought reassurance,’ says Stacy. ‘If anything horrible happens to me or Nick, our finances will be protected.’
Cover need not cost the earth. Figures from Highclere Financial Services show that a 40-year-old buying £100,000 of critical illness cover for 25 years can expect to pay just under £52 a month.
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