5 myths about financial protection, exposed
Most of the UK population holds mistaken beliefs about insurance. For instance, according to the ABI (Association of British Insurers), 70% of consumers believe gender plays a role in insurance pricing. However, this is not the case.
Are you believing myths about financial protection that could be costing you money? Below, our team of financial planners explore five common misconceptions about insurance and how to protect yourself.
#1 “I don’t need protection”
Many humans inherently believe they are more likely to experience good events than bad ones. This bias is not completely harmful. After all, evidence shows that people are more likely to succeed if they believe they will succeed. However, optimism bias can have its drawbacks.
For instance, if we believe bad things happen to others, but not ourselves, it can lead us to deprioritise financial protection. If the worst does occur – e.g. premature death – it could lead to negative outcomes, such as a missed life insurance lump sum for surviving loved ones.
Instead, consider the possibility of what could happen to you and the potential impact. For instance, one in two people born after 1960 will be diagnosed with cancer in their lifetime. Are you prepared? What could the financial impact be on your family?
#2 “The government will support me”
The UK might have a more generous safety net than many other countries, but the government is unlikely to completely support you in the event of disaster.
For instance, Statutory Sick Pay (SSP) is just £118.75 per week (as of April 2025) for up to 28 weeks (not enough to cover most household expenses). Universal Credit can provide ongoing financial assistance if your income drops, but it’s means-tested. As such, it may be reduced based on your partner’s income, savings or other benefits.
Instead, you need to build your own safety net. This means considering options like income protection, life insurance, private medical insurance (PMI) and critical illness cover. A financial adviser can help you explore each option based on your goals and needs.
#3 “Critical illness cover and income protection are the same”
Due to their health-related nature, these two financial products are commonly confused – even among financially aware individuals. However, they differ in how, when, and why they pay out.
Critical illness cover provides a lump sum payment if you are diagnosed with a specified serious illness or undergo a particular medical procedure. Income protection replaces your monthly income if you’re unable to work due to an illness or injury.
There are nuances to both, and their suitability may vary based on your circumstances. For instance, a self-employed person lacks access to SSP. As such, income protection is especially important.
Certain individuals may even benefit from having both policies – e.g. critical illness cover to handle the immediate, high-cost impact of a major diagnosis, whilst income protection ensures ongoing financial stability.
#4 “My partner doesn’t need cover if they don’t earn”
Your significant other may not earn (or may earn very little). However, they still provide immense value – financially, practically and emotionally.
Losing them can have serious financial consequences. The absence of a stay-at-home partner or caregivers could incur a very real financial cost (e.g. reduced work hours for you, or even leaving work temporarily to take over care responsibilities).
Financial protection can help, with policies set up jointly or individually depending on needs. This helps ensure your family’s lifestyle, wellbeing and long-term plans remain intact, no matter who suffers a loss.
#5 “Once I get cover, I can forget about it”
Many people take a “set it, forget it” attitude to financial protection. However, preserving your wealth and lifestyle isn’t a one-time task. Protection policies need regular review to remain relevant as your life changes.
Insurance should evolve with you, just like your mortgage, family, career or retirement plans. Leaving it unattended could result in being underinsured, overpaying or leaving serious gaps in your protection strategy.
For instance, suppose an individual goes through a divorce. Without updating their protection, their ex-spouse/partner may still be a named beneficiary on a policy. This may no longer be desirable. Instead, the preference might be to pass everything straight to the children.
Regular reviews with a financial adviser can provide peace of mind, especially when done after a major life change. This keeps you and your loved ones fully protected, minimising (avoiding) wasted money on irrelevant or duplicate cover.
Invitation
We hope these insights have been helpful. If you want to ensure you’re taking the right steps to safeguard your finances, please get in touch.
Please note:
Insurance policies may have no cash-in value. Premiums must be maintained, or cover will lapse. Terms and conditions apply, and exclusions may limit coverage. Non-payment of premiums results in loss of cover. Policies may exclude certain events. Inflation reduces the real value of fixed cover amounts.
