A recent study, published in FT Adviser, found that many consumers are sceptical about taking out financial protection. For example, more than a third of people surveyed stated that it was too confusing, while one-fifth believed than insurers were not “honest and transparent”.
The results of this study reflect some of the false beliefs surrounding protection that cause people to avoid putting the right cover in place. Read on to find out three of the biggest myths surrounding life insurance and the truth behind them.
Myth 1: Life insurance is too expensive
One of the most persistent myths about life insurance is that cover is too expensive. According to a 2018 report by Legal & General, 92% of millennials tended to overestimate the cost of protection.
In their report, a sample of young people were asked to guess how much it would cost to insure a 30-year-old non-smoker for £100,000 worth of cover for 30 years. Surprisingly, around one-quarter of the sample estimated that it would cost more than £50 per month.
The median guess was that it would cost £23 per month, which is around three times the actual cost of such a policy. According to data from Legal & General, the average cost of cover for the person in this example would only be £7.27 per month.
As you can see, the cost of protecting yourself against the unexpected can be as low as the price of a few cups of coffee.
When you have people who depend on you, the financial shock of your unexpected passing could be significant. So, putting the right cover in place is essential – and it might only cost a few pounds each month.
Myth 2: Only old people need life insurance
Another common myth about life insurance is that it is only older people who need it. This may be understandable, given that old people tend to be more likely to pass away, but young people can still benefit too.
One of the lessons that the pandemic has taught us is that the unexpected can happen at any time. When it does, it’s important to be prepared and this is particularly true if you have joint financial obligations.
The strong growth in house prices in recent years has meant that many young people are only able to buy a home as a couple. If you have a joint mortgage with a partner, and you pass away before you have repaid it, your death may leave them in a difficult financial situation.
According to a study by Legal & General, over 1.5 million millennials who hold a joint mortgage don’t have life insurance in place. Despite the potential risks of this, more than one-third of these people said that if they passed away, it’s unlikely that their partner would be able to keep up with mortgage payments.
When you’re grieving the loss of a loved one, financial stress is the last thing you need. Ensuring that you have the right protection can help to give you peace of mind, knowing that your partner wouldn’t have to struggle financially if you pass away prematurely.
Myth 3: Life insurance never pays out
One of the final myths about life insurance is that policies never pay out, as many people believe that insurers always find legal loopholes to avoid paying claims. According to the study published in FT Adviser, almost half of people surveyed agreed with this belief.
Thankfully, when you look at the data it becomes apparent that the opposite is true.
According to a report by the Association of British Insurers, the insurance industry paid out more than £6.2 billion in 2020. This is the highest figure on record and up 8% from 2019. Of this total amount, more than half is made up of life insurance claims.
Furthermore, the data shows that 98% of financial protection claims were paid out, dispelling the myth that insurers go out of their way not to.
If you want to protect your loved ones from the financial shock of your death, taking out the right form of cover can be key. There are many different types of protection and so if you’re unsure which is right for you, you might benefit from speaking to a professional.
Working with an expert can help you to find the right cover for you, so you can rest easy knowing that you’re protected against the unexpected.
Get in touch
If you want to know more about how financial protection can benefit your loved ones, get in touch. Email enquire@london-money.co.uk or call us at 0207 808 4120 to find out more.