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Life, income & health

Wednesday, 26 August 2015 08:00

If we insure ourselves in our car, why don’t we carry the same protection for our lives when we are not in them? It’s not nice to think about personal injury or indeed death, but insurance can provide welcome protection at the most important time, however working out which type you need and can afford can be tricky.

Income Protection

Income Protection (IP) insurance will pay you a regular income if you are unable to workbecause of an accident or illness.

Normally, IP policies pay between half and two-thirds of your income until you return to work, reach retirement age or die. Cheaper, shorter-term policies are available, that pay out for a set period, which is typically one or two years.

How long you will have to wait to receive your payout will depend on your policy; generally the longer you wait, the cheaper it is.

What to look out for

Ensure you study the details of a policy before you sign up, because different providers have different definitions of being unable to work.

Ask your employer if they offer any kind of income protection-type benefit, which might make buying your own policy unnecessary. Remember that income protection insurance is particularly useful for freelance or selfemployed workers.

Check whether your policy covers self employed occupations, or if it is based on your ability to do a ‘suited occupation’, a similar role but not necessarily the one you’re currently in.

More generic policies will be list-based in definition, typically a list of six tasks, such as lifting a pen and getting dressed; the claimant would have to be unable to do three of them to be classified as unable to work.

Life Assurance

Life cover actually pays out a lump sum upon your death.

There are different types of life assurance: ‘set term’ which will for a pre-determined period, or ‘whole of life’ which continues until you die, providing you pay your premiums.

Whole of life cover can be taken on an income basis too, so that when you die your family will receive a monthly amount rather than one lump sum.

What to look out for

You should put your policy in trust, which sounds complicated but in reality it’s just like filling in a form, and it means the money passes quickly to the right people in the event of your death.

Single policies are preferable to joint plans, as the cost is invariably the same and yet they offer double protection because there will be a payout on each person’s death, rather than just upon the death of the second spouse. Index-linking your policy is also worth considering: the price of your premium will rise slightly each year but so will the level of your cover.

Critical Illness Cover

This type of insurance policy pays out a lump sum in the event that you are diagnosed with one of a specified set of illnesses and conditions set out in the policy. Typically such policies cover around 30 to 40 conditions, ranging from heart attacks and cancers to less common illnesses.

What to look out for

Most critical illness policies are bought alongside life cover. Some people might be put off by Critical Illness Cover (CIC) as it tends to be more expensive than life assurance, but there is a reason for that: you’re much more likely to use it. Insurers have a waiting period of usually 21 days written into the policy, which means that if the policyholder passes away during that time, it is treated as a death claim rather than a critical illness claim.

Never think it won’t happen to me

Research suggests protection products are some of the hardest for customers to understand, but it’s important to understand that although these policies sound similar to each other, they insure against different life events and thus their suitability will depend on personal circumstances.

Before taking out any form of protection it is important to decide what type of cover you want and how much cover you will need, to ensure you don’t end up under or over-insured.

Ideally you should review your policies regularly to ensure they are appropriate for today and that they cover you to an acceptable level.

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it. - Fraser Brydon - Money Matters