ProtectionJan 25 2018

Why do millennials need to have protection?

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Why do millennials need to have protection?

In other words, scenarios that many of us do not care to think about, such as an illness which prevents us from working, or situations many people just do not believe will ever happen to them, including death at an early age.

But even if someone does not own their own home, have children or a partner, and even if they do not have a history of illness in the family, it is very likely they will still benefit from some form of protection.

Possible scenarios

Paul Roberts, head of protection at Old Mutual Wealth, says: “The issue with protection is convincing people, no matter what age, to accept hard truths. These truths are misfortune, illness or injury can occur to them.” 

He admits often these become more accepted with age.

“However, just because knowledge and engagement is something that happens, traditionally, in later life does not mean that protection isn’t important for everyone,” notes Mr Roberts.

“For a variety of reasons, millennials are reaching traditional life stages, such as getting married, getting a mortgage, having children, at a later age. They tend to cite this as a core reason for not needing cover and putting it off.”

Millennials might think they don’t need protection insurance, but they shouldn’t dismiss it because even young adults are at risk of getting sick or passing away early.Emma Thomson

He suggests the industry needs to explain protection is crucial no matter the lifestyle.

Fraser Glass, financial planner at Fryer Glass, outlines: “They may or may not be in a long-term relationship and even if they are they may not be married or in a civil partnership. They may or may not have financial support from the bank of Mum or Dad. All these factors are highly important in how they should manage their financial lives.”

He lists a number of scenarios that could arise should those in this age group fail to purchase a protection policy:

  • Premature death, leaving a surviving partner with young children, with no, too little or the wrong type of financial protection.
  • Premature death leaving a partner (no children) over insured and prey to the stresses of ‘undeserved’ lump sum wealth. 
  • The wrong people benefit because of a failure to make wills or use trusts.
  • You get a lump sum benefit due to illness when what you really need is a regular income to replace the income you have lost when the illness prevents you doing your main job.
  • You pay for insurance that will not pay out because an employer is already providing it.

Last year, Aegon published figures which showed cancer as a whole made up 60 per cent of all critical illness claims it received in 2016, while breast cancer on its own accounted for 31 per cent of these cancer claims – the biggest single cause of Aegon’s critical illness claims that year.

In the same year, the youngest breast cancer claimant was 37 years old but back in 2007, Aegon’s youngest claimant with that illness was just 24 years old.

As Emma Thomson, life office relationship director at LifeSearch, points out: “Millennials might think they don’t need protection insurance, but they shouldn’t dismiss it because even young adults are at risk of getting sick or passing away early. 

“It’s often dismissed because they do not have a mortgage or children, but they will still need to ensure they can pay the bills and rent if they are unable to earn because of illness or injury.”

She reasons: “Sick pay through work is often much less than people assume, savings are typically insufficient and while relying on parents might be an option, that’s hardly a solid back-up.”

“At the very least, all millennials have basic living costs that need to be met, and if they are just starting out in their careers they might not be able to save enough into a rainy day fund to replicate their income,” says Iona Bain, founder of the Young Money Blog.

She also notes that millennials are far from immune from the most common causes for claims on income protection (IP) policies, which are depression and musculoskeletal pain.

As long as people provide an income to support themselves and their family, all forms of protection remain important.Stephen Crosbie

Ms Bain warns: “Young workers who feel insecure in their jobs and are desperate to make headway in the workplace are at serious risk of burnout, which could trigger any number of long-term health problems, both physical and mental. 

“The problem is particularly acute if you are a gig worker or self-employed, as you can't depend on any paternalistic support from an employer, and the process for claiming benefits is notoriously difficult.”

Safety net

For many millennials, having to think about protection is simply not appealing and not at the top of their list of priorities.

But those same people may already have insurance policies in place for their most expensive household items, including their phone, and car, and would probably not think twice about taking out travel insurance, even for a short break.

Ms Thomson believes: “Ensuring you have a financial safety net might be a bit dull, but it’s sensible and can avoid financial catastrophe, so find out your options and make a plan. 

“An income protection policy is therefore what we’d recommend people look for at first, followed by critical illness and life cover if extra cover is needed.”

Stephen Crosbie, protection director at Aegon, argues it is not millennials who need protection but rather anyone who has a job, owns a house, supports a family or runs a business. That could be someone of any age, of course.

However, he acknowledges: “Age and life stage may have an effect on what someone’s protection needs look like. These vary for every individual depending on their circumstances and financial commitments but protection should form the basis of any financial planning, regardless of age. 

“As long as people provide an income to support themselves and their family, all forms of protection remain important.”

eleanor.duncan@ft.com