How exposed are your finances if something goes wrong?

Six in 10 adults have no financial protection in place to support them or their families if illness, injury or death strikes.

That’s according to new findings from the Financial Conduct Authority, which suggest many people who could benefit from cover either don’t have it or haven’t considered how exposed they might be.

Protection products covered by the regulator include life insurance, income protection and critical illness cover. These only pay out when a specific event occurs.

Here, Which? rounds up four ways this could leave you financially exposed, from losing income to facing extra costs, and how to reduce the cost of cover without leaving yourself exposed.

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1. If your household lost your income

If a partner, children or other dependants rely on your income, losing it because you die can leave them financially exposed.

Without cover in place, everyday costs such as rent, a mortgage or household bills could quickly become difficult to manage if you were to die unexpectedly. This risk often affects couples, families with children and anyone with long-term financial commitments, but renters and younger adults can be exposed too.

Life insurance is designed to help close this gap. It usually pays a tax-free lump sum, or in some cases a regular income, to people you choose if you die while the policy is active. That money can be used to replace lost income or cover large costs such as housing.

How much you pay depends on factors such as your age, health and how much cover you need, but premiums are generally lower the earlier you take out a policy.

• Find out more: best life insurance

2. If illness or injury meant you couldn’t work 

Being unable to work for an extended period can have a bigger financial impact than many people expect. Statutory sick pay is limited, and employer sick pay often reduces or ends after a set period, leaving a sharp drop in income.

This gap is particularly relevant for self-employed individuals, freelancers, and those on short sick pay arrangements, but it can also affect employees once workplace support ends. Savings can help, but may not stretch far if time off work lasts months rather than weeks.

Income protection insurance exists to address this risk. It pays a regular, tax-free income, typically around 50% to 70% of earnings, if illness or injury means you can’t work. Payments usually begin after a waiting period and continue until you return to work or the policy ends.

Whether it’s suitable depends on factors such as your job, health, sick pay entitlement, and how long you could manage without earnings.

3.  If a serious diagnosis brought extra costs 

A serious illness doesn’t just affect your health. It can also mean time off work, reduced income and extra costs at the same time.

You may be exposed to this gap if:

• you don’t have enough savings to cover several months of bills
• your employer sick pay is limited
• a lump sum would be needed quickly to deal with costs or debt.

Critical illness cover pays a single, tax-free lump sum if you’re diagnosed with a specific serious condition listed in the policy, such as cancer, a heart attack or a stroke.

Unlike income protection, it doesn’t replace your salary over time. Instead, the money is paid once and can be used however you need it. Cover varies between insurers and usually depends on how severe the illness is, so it’s important to check exactly what’s included.

• Find out more: critical illness cover

4. If treatment delays kept you off work longer 

Health problems don’t always stop you working completely, but delays in diagnosis or treatment can keep people off work longer than expected. Longer waits can mean extended time on reduced pay, or a slower return to full earnings.

For some people, faster access to treatment could shorten recovery time and limit the financial impact. Private medical insurance (PMI) generally covers private tests, consultations and treatment for eligible conditions, which can significantly reduce waiting times.

It’s important to note that it won’t replace lost income, doesn’t usually cover emergency care and often excludes ongoing conditions.

While private medical insurance isn’t classed as ‘pure protection’ by the regulator, it can sit alongside other cover by reducing how long health issues disrupt your finances.

5 ways to cut the cost of protection cover

Protection insurance can vary hugely in price, even for similar cover. These are the checks most likely to reduce what you pay without weakening protection:

1. Match cover length to the risk Premiums are typically lower if the policy only runs for as long as the risk exists. For example, covering the years until a mortgage is paid off or children are financially independent, rather than taking cover indefinitely.
2. Use waiting periods strategically With income protection, the waiting period before payouts start has a big impact on cost. If you could rely on sick pay or savings for three or six months, choosing a longer waiting period can significantly reduce premiums.
3. Avoid paying for cover you don’t need Life insurance and critical illness cover are often sold together, but bundled policies aren’t always better value. Buying cover separately can help you avoid paying for protection that doesn’t fit your situation.
4. Check workplace benefits before buying Many employers provide death-in-service cover, PMI or some income protection. Knowing exactly what’s included can help you avoid doubling up on cover.
5. Re-run quotes if your circumstances improve Stopping smoking, reducing debt or changing jobs can all lower premiums. Comparing quotes occasionally can reveal cheaper options for the same level of cover.