This month kicks off our three-month Insurance Series where we explore certain types of long-term insurance policies. Over the next three months we will delve into more detail on life insurance and its various guises. Most of us will have some sort of insurance cover in our lifetime – most common being car, home or health insurance. While many of us will have at least one such policy, fewer people consider or take out longer policies. The types of insurance that we are considering in this first instalment are life, critical illness, and income protection. We look at each of them in turn, what they include, and when it’s appropriate to get cover to protect you and your loved ones. Remember that our team of independent financial advisers is always available to help – find us on www.plutuswealth.com.
While you may have little obvious need for such cover now, you may need it in the future. And as we well know, the future is unpredictable and being prepared is better than finding yourself, or worse leaving your loved ones, in the lurch. With over 97% of claims paid out according to the Association of British Insurers, there is no reason to keep putting off the decision. So, what are these policies about and what are your options?
Life insurance cover
Life insurance is for those who want to make sure that after their death their loved ones are financially taken care of. A life insurance policy payout can go towards paying off a mortgage or any other outstanding debt or to cover school or university fees for your children. If you have no debt, it could simply be used by your loved ones to help with day-to-day living costs or to enjoy in their own way. Options include a lump sum payout or regular payments to your beneficiaries.
There is a variety of life insurance policy types on the market, including joint life cover for couples or for those above a certain age. What they all have in common is that they will pay out only when you pass away. As with any insurance type, there are exclusions and caveats, and most will not pay out if you die by suicide, overdose or due to recklessness.
We will look at life insurance in more depth in next month’s article. This will include the types of policies available, what to consider when thinking about the level of cover, and how you can reduce your tax burden. This month we introduce the key types of long-term insurance available on the market.
Critical illness cover
Critical illness cover is designed to help you if you fall ill with a serious illness or become disabled and are unable to work. While many employers offer critical illness cover as part of their employee benefits package, it is something to consider if that is not the case. It may be that others rely on your income or you have no other means with which to cover your living costs and expenses – such as savings or statutory sick pay.
When considering whether to take out critical illness cover, it’s important to keep in mind that:
- Not all illnesses are covered. Those that are include long-term illnesses or conditions such as strokes, heart attacks, multiple sclerosis, Parkinson’s disease, or certain cancers. Loss of limbs and disability may also be covered by certain policies.
- Certain pre-existing conditions are not covered. Some insurers do cover them, but it could be at an increased premium.
- Premiums can be high.
- You may never need to claim but there is no refund if you don’t.
If critical illness cover isn’t quite what you need, an alternative is income protection cover.
Income protection
Unlike critical illness cover, income protection includes a wider variety of reasons for being unable to work and losing your income. Depending on the type of cover you choose, as well as illness it could also pay out in the event that you have an accident and are unable to work, or if you become unemployed. It also differs in that it is designed to help you pay your bills while you are not working, and you have the option of a long or short-term policy. The latter offers cover for 12 months while the former will cover you until you can return to work or retire.
There are different types of insurance cover available. Two of the most common are:
- payment protection insurance (PPI)
- mortgage protection insurance (MPPI)
Both are designed to help you with household bills while you are unable to work for a period of time. Income protection insurance, on the other hand, will cover most illnesses that prevent you from working and will pay out a percentage of your income. This is often the option chosen by those who are self-employed or who may not have the alternative of employee sickness benefits.
Individual circumstances and taking out insurance cover
As with anything, the key to finding the right insurance policy/policies is to consider your personal circumstances. Things to think about include:
- Your age. The younger you are, the cheaper life insurance premiums will be and the higher the available cover at a lower cost.
- Your family circumstances. If you have dependents who rely on your income some form of insurance could be a good option should the worst happen.
- Your medical history. Any pre-existing conditions or family history could affect the type and level of cover available to you. For example, are you a smoker? It’s important to disclose all relevant information to ensure your policy is valid.
- Cost. What are you able and prepared to pay for in terms of premiums? Do you have any savings you could fall back on as an alternative? What are the living expenses that you may need to cover in the event of illness or disability?
- Work circumstances. Are you employed, in which case you may be covered by a benefits package on offer, or are you self-employed?
Need some help deciding?
Finding a suitable policy with the right level of cover can be confusing, so why not let our Plutus Wealth team help? Our trained independent financial advisers will discuss your needs and help you decide which type(s) of cover is best for you. Take the first step by giving us a call on 020 7871 5200 or emailing us at info@plutuswealth.com.
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