By George Smart, Financial Planner, Walker Crips Financial Planning

When we talk about financial planning, the starting point is always understanding more about your goals: whether that be providing financial security for your family, buying a home, enjoying a comfortable retirement or having the freedom to make choices about your future.

Achieving those objectives takes time, and life does not always go according to plan. This is where protection comes into the equation. Protection is an important part of making sure that the progress you are making towards those goals can be maintained if circumstances change unexpectedly.

In my experience, protection is the area of planning most likely to be postponed, underinsured or forgotten about entirely. It rarely feels urgent, potentially because by its nature it deals with events we hope will never happen. But that is precisely why it deserves proper attention and is arguably the foundation on which everything else is built.

Why protection gets overlooked

A few patterns come up when we talk to clients and prospective clients about protection:

• Nobody enjoys discussing death, illness or incapacity, so the conversation sometimes gets put off.
• There is a natural optimism bias. Many of us assume serious illness or early death happens to other people, not us.
• Cost is often a barrier, and people assume cover is unaffordable or does not offer good value for money.
• Existing cover is assumed to be sufficient. Workplace death-in-service benefits or an old policy taken out years ago rarely keep pace with changing circumstances, including your mortgage, income or family situation.
• It feels complicated. Term assurance, whole of life, income protection, critical illness cover, family income benefit… the terminology alone can be enough to put people off engaging with it at all.

The result is what is often referred to as the UK's protection gap - a shortfall between the financial support families would need if the worst happened, and the cover they actually hold or support available from the state.

Addressing that gap starts with recognising that the right protection strategy looks different at each stage of life.

When you might need to consider protection

The financial protection needs that you have during your lifetime are likely to evolve as circumstances change and life progresses. Some common reasons for setting up financial protection policies include:

Buying your first home: protecting the mortgage

Taking on a mortgage is usually the largest financial commitment most people will ever make, and for many first-time buyers it is also the point at which protection first becomes relevant.

A mortgage does not disappear if something happens to the person paying it. Life cover, typically arranged on a decreasing term basis to mirror the reducing mortgage balance, can provide a lump sum to help repay the outstanding mortgage, helping ensure the property can be kept in the family rather than sold to clear the debt.

Critical illness cover can go a step further, providing a lump sum on diagnosis of a qualifying serious condition so that mortgage payments and day-to-day living costs can continue while someone recovers or adjusts to a new way of life.

Self-employed/business owners: protecting income, not just assets

Employed staff often benefit from sick pay, employer-funded death-in-service cover and sometimes group income protection, without ever having to think about it. However, the self-employed and business owners have none of this as standard.

If illness or injury prevents a self-employed individual from working, income can stop overnight, while the household's outgoings continue. Income protection insurance, paying a regular replacement income after a chosen deferred period, is one of the most valuable and most underused forms of cover to protect against loss of earnings.

It is not about becoming better off through illness; it is about maintaining a basic standard of living whilst unable to earn. For business owners, this can be extended further with relevant life policies and key person cover to protect the business itself, not just the individual.

Growing families: replacing income, removing financial worry

As families grow, so does financial responsibility. If a parent were to die, the financial impact can be significant, particularly where the family relies on their income or support. Life cover can provide support to help with immediate financial commitments, such as repaying a mortgage or other debts, and replacing lost income, while also providing financial security for the family’s future.

The amount of cover required will depend on individual circumstances, and for some families, a lump sum may provide the most appropriate solution. For others, family income benefit, which provides a regular income to the family for a specified period, may better reflect how the money would actually be needed over time. A combination of the two can also be considered.

Protection is not just about replacing a salary. It can also recognise the value of childcare, homemaking and other support that a parent provides. The aim is to ensure that, if the worst were to happen, the surviving family has the financial flexibility to maintain their standard of living and continue working towards their longer-term objectives.

Later life: protection as part of inheritance tax planning

Protection is not only for younger families. For those with an Inheritance Tax liability, whole of life cover written in an appropriate trust may be used to help to meet a future liability, ensuring beneficiaries are not forced to sell property, investments, or pension assets simply to settle an Inheritance Tax bill.

This has become particularly relevant with the upcoming change bringing unused pension funds within the scope of Inheritance Tax from April 2027, which for many families will increase the potential liability.

Reviewing how that liability might be met, and whether protection has a role to play, is a conversation worth having before the rules take effect rather than after.

The importance of reviewing existing cover

Protection is not a decision to make once and then forget about. Cover taken out many years ago is unlikely to reflect your current circumstances and financial position. A mortgage may have increased, a family may have grown, income may have changed, and older policies may lack features that are now standard.

Just as your investments, pensions and wider financial plan need to be reviewed as your circumstances change, so do your protection policies. Regularly reviewing existing cover ensures it keeps pace with life rather than falling quietly out of date.

It is the part of a financial plan that exists to make sure the rest of the plan can actually happen, whatever life brings. Whether you are buying your first home, working for yourself, raising a family, or thinking about Inheritance Tax planning, the right protection strategy will look different at each stage of your life.

This article is for general information purposes only and does not constitute personal financial advice. Tax rules and pension regulations depend on individual circumstances and may change. You should always seek regulated financial advice tailored to your own situation before making any decisions about your pensions, including before transferring any pension arrangement.