Types of protection

All insurance works in the same basic way: you make a regular payment to an insurer, who in return agrees to pay you a larger sum of money if a particular event takes place. The size of your regular payment (called the premium) depends on the insurer’s estimate of how probable this event is, and how large their payout will be. In a way, you are making a ‘bet’ that something bad will happen to you; if the bad thing does happen to you, then the bet pays out.

Some kinds of insurance are compulsory, such as car insurance or home insurance on a mortgaged property. Others are highly advisable, while some may be just nice to have, but all have their potential uses for protecting yourself, your family and any other dependants.

Life insurance

This is insurance that pays out in the event of your death during a particular time period. This can be invaluable if you are a major or sole household earner, as it can ensure your family is provided for. It can also be used to reduce inheritance tax.

Accident, sickness and critical illness cover

This is insurance that pays out if you become unable to work due to illness or injury.

Income protection insurance

This is similar to accident, sickness and critical illness cover, except it generally pays out for a longer term, replacing some of your lost income if you become unable to earn for an extended period.

Payment protection insurance

This covers monthly loan repayments if you are unable to meet these costs yourself, whether through illness, unemployment or other changed circumstances.

Find out more about each kind of protection by clicking on the links. Your financial adviser can help you find the right kinds of protection and appropriate levels of cover.