How secure do you feel in your finances right now? Without a strong “safety net”, life can feel very vulnerable. Fortunately, you do not have to simply accept life’s surprises.
With a financial protection plan, you give yourself – and your loved ones – the best chance of weathering life’s storms. Below, our Carlisle financial advisers provide a short guide to financial protection, offering ideas to help you strengthen your finances in 2025.
What is financial protection?
Financial protection is a plan that helps individuals and families withstand unexpected financial shocks. A sudden illness, job loss, or economic downturn can quickly derail a household from its financial stability and throw you off course.
In the UK, the definition of financial protection is heavily focused on insurance – e.g. policies such as life insurance. However, for our financial advisers in Carlisle, financial protection is more holistic, covering areas such as savings strategies and legal planning.
Not all individuals need every aspect of protection listed below. However, many of the areas below can be crucial aspects of a protection plan, depending on your goals and circumstances.
Income protection
What would happen to your income if you suddenly could no longer work due to serious illness or injury? Income protection exists to provide a replacement income in such a situation.
The level of income depends on your policy. However, a common level is between half and two-thirds of your salary. The replacement income is delivered tax-free, and the payments can continue until you return to work, retire, or pass away.
The main benefit of income protection is peace of mind and financial security if your health suddenly suffers. There are many coverage options (providing flexibility), and benefits can be especially attractive to sole traders who do not have access to statutory sick pay.
However, income protection may be limited if you have pre-existing medical conditions or if you are in a high-risk occupation. Premiums can be expensive, especially for shorter deferred periods or comprehensive coverage.
Health and life insurance
Health insurance is also known as private medical insurance (PMI). It helps cover the costs of private medical care. This is separate from life insurance, which can provide a lump sum payout when you die. However, some insurers let you buy them together under a joint policy.
PMI can help you bypass NHS waiting times and receive treatment more quickly. You may also have access to better hospitals, specialists, and medical facilities. If the worst happens, a life insurance payout can provide much-needed financial security to your grieving loved ones.
Conversely, premiums can be costly – especially for older individuals or those with pre-existing conditions. Certain treatments may not be covered (e.g. routine GP visits, maternity care), and costs can rise as you age or if you make multiple claims.
Savings and emergency funds
Everyone knows the importance of savings. A “rainy day” fund can be a lifeline if your car gets badly damaged, your boiler breaks, or you receive a large surprise bill. However, not everyone saves enough (or effectively).
A good rule of thumb is to have 3-6 months’ worth of living costs ready in easy-access savings. You might need more if you are in a volatile occupation and depending on your age (there can be a “bell curve” between your 20s and 50s).
The main benefit of an emergency fund is it helps guard against turning to credit when you face a large expense. However, there can be an opportunity cost to holding too much wealth in cash because interest rates are typically lower than the returns from other assets (e.g. equities).
Legal and estate planning
Financial protection is not just about shielding your income from immediate “shocks”. It also involves safeguarding your assets from more “distant” scenarios like losing “mental capacity” (e.g. due to dementia) or losing wealth to the “wrong” beneficiaries upon death (perhaps due to reliance on the UK’s intestacy rules).
This is where estate planning and financial protection planning intersect – again, highlighting the importance of having a holistic financial plan. For instance, having a will can help protect your wishes upon death, ensuring your assets pass to the right people, in the right manner, at the right time. Power of attorney (POA) can also stipulate what should happen if you can no longer make independent decisions due to declining health.
The main risks here are poor planning (perhaps due to taking a “DIY approach”) and outdated documentation. It is vital that your will, POA and other estate planning documents achieve your goals effectively within the UK’s complex tax landscape. A financial adviser can help you here.
Invitation
We hope this content gave you more clarity. To discuss your own financial plan, please get in touch to arrange a free, no-commitment consultation with an adviser here in Cumbria.