Saving does not replace Insuring!

Saving is not a sensible alternative to insurance because most people could not hope to put by the sums
that income protection or life assurance policies can offer at prices they can afford.

Ensuring the family is protected can be regarded as a way of acting responsibly. Consider the subject of saving for a little longer. There is a school of thought that suggests protection is largely unnecessary and that instead people should
create their own personal catastrophe fund by saving the money they would have paid in premiums. The idea of saving money for a rainy day is not new, but is this a credible alternative to taking out life assurance or income protection?

Currently life assurance is about as cheap as it ever has been. Someone can buy a policy giving £250,000 of cover for around £25 per month; it would take more than 800 years to build up a similar lump sum by saving the premiums in a
catastrophe fund. This is not a realistic timescale.

To provide a lump sum of that size over an average working life of 40 years would entail tucking away up to £525 a month. Again, this is unlikely in the real world. Most people do not save anything like that amount each month.
Even if people could save that amount each month, what if something goes wrong before they have built up their catastrophe fund?

Arguments like this can help to highlight that protection offers good value for money and that savings cannot replace it, but should exist alongside it. Protection could be regarded as a way of saving for a rainy day: with the right cover in place, hardearned savings will be protected if things go wrong. It is also a form of savings regime, and saving is a habit that many people in the UK do not have.

Advocates of saving rather than protection argue that most people do not need life assurance. They are correct that people with no dependants do not need such cover. They also argue that employed people probably have life assurance as part of their remuneration package and therefore do not need any more. True, this is often the case but the three or four times salary that may be provided is probably not enough to cover a modern family’s needs. Certainly this cover must be factored into an individual needs analysis but it is incorrect to imply that what is available from an employer is sufficient.

In a society where people change jobs frequently there may be times when they are not covered under an employer’s scheme. This is where the longevity of a personal policy can provide reassurance. That cover is in place should
something happen when policyholder is between jobs. Savings advocates’ argument suggests that the closer people are to retirement, the less they need life assurance because they will have paid off their mortgage and their children will have left home. This might be the case, but equally some people may have remortgaged their home or may be raising a second family.

Such generalisations could make people complacent when what they need is advice tailored to their individual circumstances. Credencis will certainly take account of employer provided protection and whether the mortgage is close to being paid off. But unless an individual seeks that advice, they could be leaving themselves underprotected.
Or worse, they could be underprotected but living in the blissful ignorance that they do not need the cover they haven’t got.

Credencis

“Live for today, Invest for tomorrow”