What health insurance policies can support our family?
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We’re a couple with two young children. We both work and are higher rate taxpayers. We have a sizeable mortgage and our monthly expenditure is pretty high, with all the activities that the children are involved with. We’ve been talking recently about what would happen if either of us was ill for a long time and have come to the conclusion that we would need some extra help. What sort of health insurance would you recommend?
Richard Barker of Smith & Pinching responds:
There are two principal types of insurance that you can adopt to support the family if you were to become too ill to work. Which type would suit you best would depend on a range of circumstances so I suggest you meet with an independent financial adviser to explore this further.
Income protection is a policy that will provide a regular income – usually a percentage of your normal salary – while you are unable to work. The income will normally be exempt from tax, if you have paid for the cover yourself from taxed income.
Eligibility is based on being “incapacitated”, so unable to work, rather than on specific illnesses or conditions. Although you should check the policy for any exclusions, such as pre-existing conditions. It will cover both physical and mental health problems.
The policy will be set up to come into play after a pre-defined deferred period that can be anything from four weeks to two years. It can be set up, for example, to take over when your employers’ sick pay period ends. It will provide an income until you are well enough to return to work and may include additional payments to you if you are hospitalised or found to be terminally ill.
Income protection policies are taken out to support the individual rather than you both as a couple, so if you want to provide an income to replace either of yours, you will normally need two policies.
Critical illness insurance is structured differently. It provides a tax-exempt lump sum payment if the person covered is found to have one of a list of illnesses or conditions specified in the policy. The policy will also specify the level of severity at which the insurance will apply for each condition.
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For both types of insurance, the cover will depend on regular payment of premiums. Many insurers provide health helplines and recovery/recuperation services to support you while you are ill and to help you return to work more quickly.
Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk