Understanding Lifestyle Protection Insurance

2012 is shaping to be a difficult year for both the public and private sectors in the UK. When the economic climate is this bleak everybody suffers, and no one can look at their job and say with certainty it is 100% safe.

The best we can do is take measures to protect the things that are important to us, in case the worst should happen. Lifestyle protection insurance offers a safety net that enables families to keep their heads above water if they are unable to work for any serious length of time.

Lifestyle protection insurance was created as a replacement for payment protection insurance, which became the target of negative publicity in 2011 when it emerged that banks had been mis-selling this product to people who didn’t need it. While it was no reflection on the product itself, a lot of banks decided they didn’t want to sell it anymore, and major insurance providers decided to introduce a new, cleaned up product called short term income protection, or lifestyle protection insurance.

Most LPI policies are designed to make payments for up to a year if the claimant is prevented from working by accident, sickness or unemployment. The policyholder will select the benefits they want to receive based on their individual needs, with the average monthly benefit being around £1000. For this level of cover, you would expect the premium to be something in the region of £20-£40 per month. Premiums vary depending on the age of the policyholder and the level of excess they set.

Finding the best provider can be done in a number of ways, but most people usually go straight to the price comparison sites. The benefit of these sites is that they give you a broad range of prices and options to choose from. The down side is that all the providers listed there have to pay commission to the comparison site, and so their prices are likely to be higher than what you would get by going to the providers directly.

An alternative to the big price comparison websites is the Money Advice Service, a government-funded initiative run by the FSA. The MAS service has a major advantage in that it is compulsory for insurance providers to show their full range of products and prices on there. This gives you a much more comprehensive picture than the commercial comparison engines are capable of, with all the low cost providers listed right alongside the big name brands.

Once you have found a provider and a policy that meets your requirements, you will need to be assessed in order to establish your suitability for this kind of insurance. Remember, the primary concern for any insurance provider is profit, and thus they will only agree to cover those with whom they think they have a good chance of a positive outcome. This is an important point, because if you wait until your company is making redundancies and your own job is in danger before pursuing insurance, you will have left it too late and no one will cover you.

Protecting your income with LPI is a sensible and potentially vital way to look after your family’s finances in these uncertain times. The three key pieces of advice for getting the best possible policy are firstly to ensure you get your head around all the different product names, secondly to use the FSA’s money advice service rather than commercial sites to do comparisons, and finally to make sure you don’t leave it too late to get covered!