Let’s start by saying that not everybody needs it, but, if you have people who depend on you and your income such as children or a partner, then you should certainly consider it, especially if you have a mortgage and other living expenses.
What is it?
It is a policy that is designed to pay out either a lump sum or a regular payment to your chosen beneficiaries in the event of your death.
It provides you with peace of mind knowing that when you are no longer there your family will be looked after. The amount of money that is paid out is your choice, as is how your beneficiaries receive it.
The two main types of policy are:
- Term life insurance: So called because they run for a fixed period (term) that you specify, such as 25 years. They pay out if you die during that term. If you don’t then there is nothing payable and the policy ends at the end of its term.
- Whole of Life: This type of policy pays out whenever you die if you keep up to date with your monthly premiums.
Is there anything it doesn’t cover?
It’s important to point out that it ONLY pays out if you die, although some policies do offer ‘terminal illness’ benefit which will pay out the sum insured on the diagnosis of a terminal illness (where survival beyond 12 months is not expected).
Most policies do have exclusions for things like death from drug or alcohol abuse, and if you have any dangerous hobbies or a high-risk occupation, then you can expect to pay an increased premium.
When applying for a policy it is crucial that you answer all questions honestly. If you have any pre-existing serious health conditions, then the insurer could exclude death if it is related to that particular illness.
Do I need it?
The money that your family will get from the state is much less than you think, so please do not rely on the Government to take care of your family. That’s your responsibility.
If you want to ensure that your family are provided for if you die then you should seriously consider life insurance, especially if you have any of the following:
- dependants, e.g., school age children
- a partner who relies on your income
- a residential property with a mortgage
You might also want a policy which covers your funeral expenses.
Is there anyone who doesn’t need it?
Life insurance is a personal choice, but if any of the following apply, then it may not be needed:
- you’re single.
- your partner earns enough for your family to live on
- you’re on a low income and could be eligible for state benefits.
How much does it cost?
You may be pleasantly surprised at just how cheap it can be. To protect your loved ones, it often costs just a few pence a day (less than your daily ‘posh’ coffee).
The price that you will actually pay depends on the following:
- your age
- your health
- your lifestyle
- your smoking status
- The amount you want to insure.
- The length of time you want the policy to last.
The quality of policies and providers does vary, as do the premiums so it’s best to speak with a broker that can compare against other providers.
You may already have it!
If you are employed, check with your boss/ hr department to see if you have ‘death in service’ benefit. If so, then you have life cover already. Typically, this will equate to 3 or 4 times your gross annual salary.
To decide if this is enough cover you should speak with a professional adviser, and it’s also worth remembering that you only benefit from this policy while you are employed by the company. If you leave then your policy ends.
What is Critical illness cover, and do I need it?
This type of policy is long term insurance that covers you against a list of designated serious illnesses/ conditions. If you are unfortunate enough to be diagnosed with one, then the policy will pay you a tax-free lump sum. You can then use this money as you wish.
What is it?
Critical illness cover should not be confused with life insurance. They are often sold together, but they are completely different. Critical illness pays the sum insured if you are diagnosed with one of the specified illnesses or injuries. It’s important to point out that not all conditions are covered, and the policy will advise how serious a condition must be in order to receive the pay-out.
Once the policy pays out, it ends, but some policies pay out smaller sums for less serious conditions, or (if you have the cover included) if one of your children has a specified condition.
Some of the things covered include:
- stroke
- heart attack
- certain types and stages of cancer
- conditions such as multiple sclerosis.
What isn’t covered?
Not all illnesses and conditions are covered. Some of the less serious cancers are often excluded as are some other conditions that won’t be listed in the policy.
As with life cover, it is likely that some pre-existing conditions will not be covered, and don’t forget that this policy doesn’t pay out when you die.
Speak with your adviser and check your policy thoroughly to find out what is/ isn’t covered.
Do I need it?
Most people are under the misconception that state benefits will supplement their income if they cannot work etc because of long term illness or disability. However, did you know that (if you are eligible) you may only receive between £70 and £100 per week, depending on your circumstances and severity of your illness / disability.
Consider this type of cover if:
- you do not have sufficient savings to cover you if you become seriously ill or disabled.
- you do not have an employee benefits package that covers time off work due to sickness.
Is there anyone who doesn’t need it?
Just like Life Insurance, this type of policy is all about personal choice, and everyone should consider it, but if any of the following apply, then perhaps it’s not for you:
- you have sufficient savings to cover expenses such as bills, loans, medical costs, or a mortgage.
- you have a partner who can cover living costs and any shared commitments, such as a mortgage.
- you already have some cover included in as part of your employer’s employee benefits scheme.
How much does it cost?
Critical illness cover isn’t cheap (although the younger you are when you take it out, the cheaper it is), but the cover you get is worth the money. As with Life Insurance the premium will depend on the following:
- your age
- your health
- your lifestyle
- your smoking status
- The amount you want to insure.
- The length of time you want the policy to last.
What is Income Protection Insurance, and do I need it?
According to the ABI 2017, one million people in the UK each year find themselves unable to work through serious illness or injury. Its key principle is to pay you an income if you cannot work because of the above. Ask yourself if you could afford to meet your monthly commitments if you were unable to work.
What is it?
Well firstly, it’s NOT critical illness insurance.
Income protection or permanent health insurance is a long-term policy whose main purpose is to pay you an income if you cannot work through illness or injury. It ensures that you receive an income until you retire or return to work.
There are short term policies available. These also pay out a monthly sum related to your income, but only for a limited period of time (normally between two and five years) and can cover fewer illnesses or situations. They are often known as budget plans.
The key features of it are as follows:
- It replaces your income.
- It pays out until you retire or start working again.
- It covers most illnesses that leave you unable to work.
- You can claim as many times as you need to
With income protection insurance, everything depends on getting the right policy – so make sure you speak to an independent financial adviser or broker.
Do I need it?
As mentioned above, one million people a year find themselves unable to work through serious illness or injury.
Government benefits (if you qualify) equate to only £70 – £100 per week.
This policy is not about dependants, if you would struggle to pay your bills, meet your commitments, or generally just live from day to day, you should seriously consider income protection.
It is particularly popular amongst the self-employed, or those who are employed but do not have a policy in place at work. Check with your employer what their stance is on sick pay.
Is there anyone doesn’t need it?
If any of the following apply, then Income Protection may not be for you:
- You have generous sick pay – if you have an employee benefits package which gives you an income for 12 months or more, and you could comfortably survive on this.
- You could survive on government benefits – as mentioned, they might not be enough to cover all your outgoings.
- You have sufficient savings – if you feel that you have enough savings to survive (we suggest at least 3 months net salary) but remember that your savings might need to see you through a longer period.
- You could take early retirement – If you’re near retirement age, perhaps you could afford to retire early. If you’re unable to return to work, you might be entitled to take your pension early.
- Support from partner or family – Perhaps your partner has enough income to cover everything the two of you need.
How much does it cost?
The type of policy you have, and your personal circumstance are what determine the monthly premiums. The following are all considered:
- Your age
- Your job
- Your health
- Your lifestyle
- Your smoking status
- How much of your income you would like to cover?
- The waiting period before the policy pays out.
- The range of illnesses and injuries covered.
What is Payment Protection Insurance, and do I need it?
This type of policy also has other names such as Mortgage Payment Protection or Accident Sickness and Unemployment. It is a short-term policy that is often sold alongside things like loans, credit cards or mortgages. It tends to cover the premiums for these. It is designed to pay out if you have an accident, are unable to work through illness or are made redundant.
What is it?
As mentioned above it is a policy that is designed to meet your monthly commitments on loans, credit cards or mortgages for short periods of time (max 2 years), if you are unable to work through:
- Accident
- Illness
- Redundancy
Whenever you obtain a loan, credit card or mortgage, there will always be a reminder that you must always ensure that you can maintain your monthly commitments.
Normally a PPI policy only covers a specific debt, for example, your mortgage. If you make a claim, the money will usually go straight to pay that mortgage and you cannot use it for anything else.
Policies typically cover:
- illness or disability
- unexpected redundancy (usually as added option)
- circumstances that stop you working (i.e., becoming a carer)
- death (depending on your policy).
What isn’t covered?
Payment Protection Insurance does not normally cover the following:
- for a period up to the first 90 days after you stop working (sometimes referred to as the initial exclusion period) – you need to be able to keep paying for this period yourself.
- certain illnesses – check the list in your policy.
- pre-existing conditions
- people who are retired or unemployed.
Do I need it?
If you have any credit commitments you must ensure that you can always maintain your monthly payments on these, so you may want to consider taking out such a policy. Remember it covers you for the following (if you choose each of the elements) Accident, Sickness and Redundancy.
Is there anyone who doesn’t need it?
Those who are self-employed would find it difficult to claim on such a policy and so it may not be for them. Others would include if:
- you are unemployed (rather than redundant)
- your partner or family can support you.
- you have enough in savings to keep up your monthly payments.
- you cannot afford it and you only have spare cash for basic insurance, like car insurance or buildings and contents cover.
- you can afford to live off your sick pay.
- you have a generous employee benefits package.
