Protection - the options available to you
Protection When It Matters
Understanding the options available
Aren't holidays marvellous?
First, there’s the joy of choosing where you’re going…
… as it gets ever closer, you start planning and organising what you’re going to take…
…and then you have to think about packing it all and not forgetting anything so that when you finally arrive, it’s just fun fun fun.
But it’s not so much fun when problems arise, and the one thing that can so often spoil the event is the journey. Picture it: the plane is delayed or even cancelled, or maybe the car breaks down. At least if that’s the case, your travel insurance or breakdown cover should take care of it, so it isn’t a complete disaster. It’s disappointing, but it happens, and you have to make the best of it (another game of I Spy, anyone?)...
...Now consider that as an analogy for life’s journey
The biggest ‘holiday’ you‘ll have is going to be retirement, and the earlier you can start planning for it the better.
However, the journey to retirement can take a little while, and just like your normal holiday, if it doesn’t go smoothly, you could have a real problem. But, just like your normal holiday, you can take out insurance to protect you against these problems.
Ironically most people consider travel and breakdown insurance to be absolutely critical, but will often forego Life Insurance – which is the most important insurance of all for the most crucial journey you’ll take.
We know that looked at in one way Life Insurance isn’t the most inspiring subject matter, but consider it differently: when you purchase travel insurance or breakdown cover, you understand it won’t directly replace what you have lost (the plane will still be delayed, the car will still have broken down). The aim of the insurance is to provide you with a level of compensation so that you can deal with the situation more easily.
Broadly, that’s the basis for most forms of insurance and Life Insurance is no different. Life Insurance (in fact any sort of Protection contract) will never replace what you’ve lost, but will at least enable the people affected to deal with the situation more easily.
Read on for an overview of the options available to you >>
So, having established that Life Insurance is a sensible thing to consider, let’s understand what your options are.
Bearing in mind that you’re much more likely to have a serious illness or injury before age 60 than to die, perhaps you need to look more closely at protection against that. Or maybe your employer provides an element of Life Cover, but no critical illness cover.
Whatever your requirement, now that you recognise the benefit of protection, let’s see what’s available to suit your circumstances.
Life Insurance is a simple concept that helps you to financially protect your family’s future.
You choose the amount of life cover you need and how long you need it for and you can pay your premia monthly or annually. Should you die during the term of the contract, it will then pay out a cash lump sum. Life Insurance simply offers reassurance that your family would be protected if the worst were to happen.
This sort of cover is often linked to a mortgage, with the lump sum payable being the mortgage value. In this instance, it can often be purchased with a decreasing value, so that as you pay the mortgage off, the cover reduces. The advantage of this is that it also reduces the cost of the cover.
Permanent Health Insurance
Permanent Health Insurance
Permanent Health Insurance (PHI) or as it is better known, Income Protection, is designed to pay you a regular monthly income if you can’t work due to accident or sickness.
It allows you to keep up with all your essential expenditure, from mortgage/rent to utilities and groceries if you’re ever medically unable to work.
Statutory Sick Pay (SSP) is paid by your employer for up to 28 weeks, but is unlikely to provide adequate income protection in the event of serious illness. The standard rate is only £95.85 (2020/21) a week which in most instances will not be sufficient to meet all of your expenditure needs.
After 28 weeks of illness claimants must undergo a test checking their ability to carry out a range of work-related activities such as walking, sitting and using stairs. Even if you qualify, benefits are not generous and they are taxable. With PHI you can get cover for a wide range of illnesses such as heart disease, cancer and mental illnesses.
- You can protect your annual income (sometimes upto 70%)
- Choose cover which will pay out from as short as 1 week of illness or injury. This could also be a longer period if your employer will cover your salary for a defined period of time e.g. 13 or 26 weeks
- The best Permanent Health Insurance will pay out long-term, right up until your retirement if you can never work again
- Depending on the circumstances, all the benefits you receive from your policy are tax free
There are illnesses that a PHI policy will not cover. Most insurers exclude Aids, self-inflicted injury, illness caused by drug or alcohol abuse, an act of war or criminal activity, pregnancy, childbirth or associated complications.
Critical illness affects many people, at any age, and can turn families’ lives upside down.
Whilst many people have life assurance to cover the needs of their loved ones should they die, often they haven’t considered the more likely option of a serious illness. If you were to become seriously ill, would your loved ones struggle to keep up with household bills and the mortgage?
Critical Illness cover could pay out a cash sum if you get one of the specified critical illnesses. Most policies cover at least seven of the key conditions, which are: cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. It provides financial protection in the event of diagnosis of a critical illness during the term of the policy.
The conditions covered vary from provider to provider and it’s important that you discuss this with an advisor as you may need to double-check which are covered by your chosen provider before taking out the policy if you have a family history of a particular illness.
It is also important to note that Critical Illness Insurance can be taken either as a standalone policy or as part of a Life Insurance policy.
"Whilst many people have life assurance to cover the needs of their loved ones should they die, often they haven’t considered the more likely option of a serious illness."
Family Income Assurance is a type of life insurance which pays out a regular income if you die, rather than a lump sum.
It’s important to consider how your family would cope without an income source and, depending on your circumstances, this sort of policy may be more suitable than a lump sum payment.
You choose the amount and type of cover you want and how long you want your insurance to last (the ‘plan term’). Then if you die during the chosen term, a tax-free income is paid right up until your insurance comes to an end. This insurance will often pay out if you’re diagnosed with a terminal illness, and not expected to live for more than 12 months.
You can choose level or inflation-linked cover and it can be set up on a single or joint life basis. A single life insurance policy covers one person and will start to pay out a regular income if that person dies, or is diagnosed with a terminal illness. A joint life insurance policy covers two people and will start to pay out a regular income if one of the insured people dies, or is diagnosed with a terminal illness.
However, for a joint life policy it’s important to understand the plan only pays out on the life of the first person who dies or is diagnosed with a terminal illness - it won’t pay out again for the second person.
Because Family Income Assurance pays a regular income, it’s often more affordable than other types of life insurance, which pay out a fixed one-off lump sum.
Most people recognise that some element of protection is important whether it be for the car, holiday or house.
Interestingly, the one level of protection that matters the most is so often the one that’s given the least consideration, mainly because it’s the one no one wants to think about.
But we think it helps if you think of it as protection against a problem you may have when you embark on any journey.
It’s something that can at least make things a lot easier if something really does go wrong.
Most importantly of all, do make sure you get advice when dealing with any form of Protection. As you can see from this document, there are many decisions to make and getting advice will ensure you have the correct protection for your circumstances.
If you suffer illness or injury you’ll have more than enough to think about, and it will be even harder for your loved ones should the worst happen. But with protection, at least you can ensure that bills can be paid and your loved ones are still supported.