How to know what kind of protection insurance you need

There are many insurance products available, each protecting against different events and offering various levels of cover.

For example, life insurance policies pay your dependants money as a lump sum or as regular payments if you die.

But you’ll need a different type of protection insurance to cover you if you have to stop working due to an accident or a serious illness.

These are the two main two options:

• Income protection insurance. This covers some of the income you lose if you can’t work because you’re ill or injured. It ensures you continue to receive a regular income until you retire or are able to return to work. Find out more in our income protection guide.
• Critical illness insurance. This pays out if you get one of the specific medical conditions or injuries listed in the policy. The most common are stroke, heart attack and certain types of cancer. Find out more in our critical illness insurance guide.

Ideally, try to save up enough money to cover three months of living expenses. However, it can take time to save up this amount of money. And protection insurance might be a cost-effective way to protect yourself.

The insurance products you choose should reflect your personal circumstances and what you want to protect.

For example, a life insurance product usually makes sense for couples or parents. But it wouldn’t suit someone with no dependents, as the policy only pays out when you die.

Someone with no dependants might be more interested in income protection insurance. This covers you if you lose your salary due to illness or injury.

If you can’t afford to get cover for everything you want to protect, think about your priorities or consider a lower level of cover. Some protection might still be better than none.

You might, for example, decide to make sure you can keep up with your mortgage or rent payments if you lose an income.

When it comes to protection insurance, it’s not simply a case of signing up to the cheapest policy.

There’s no one size fits all and your monthly payments – also known as premiums – will depend on a number factors. These include:

• the product you’re taking out
• how long you’re taking it out for
• age
• marital status
• whether you smoke or have smoked
• lifestyle – for example, do you do extreme sports?
• health – your current health, weight, family medical history
• job – some professions are higher risk than others
• any ‘add-ons’ that you want to include
• whether you’re taking out a single or joint policy.

How much cover you might need will depend on:

• your take-home pay
• day-to-day living costs
• debts
• mortgage/rent.

It’s useful to weigh up the costs of a policy against the risks of being uninsured. For example:

• how much would you lose if you became ill and found yourself unable to work?
• how would you cover your essential costs, such as mortgages or rent?
• how would your family cope financially after you die if there’s no life insurance in place?

One way to decide what kind of cover you need is to weigh up the risks and benefits of protection insurance against the cost and coverage.

It’s up to you to decide what’s important to you and how you’ll protect it.

The first step is to set yourself a goal. What do you most need to protect?

This could be:

• providing for your children
• covering your mortgage payments
• making sure you have an income, whatever happens.

Second, consider what protection you already have. For example, if you’re employed you might have:

• a benefits package that includes a form of life insurance, or
• income protection for a set period if you find yourself unable to work due to illness or injury.

Similarly, certain packaged current accounts might also include some forms of insurance cover.

Third, and finally, work out what protection insurance you want based on the cover you already have and what you want to protect.

For example, if you’re self-employed and have children you might decide to get income protection insurance to cover you in case you become unable to work. You might also want life insurance to make sure your dependants are taken care of when you die.

But if you have children and are employed by an organisation which has a ‘sick pay allowance’ in its benefits package, you might feel you just need life insurance.