Which is best: income protection or critical illness insurance?
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I am married with two young children. My wife and I have been looking at how financially vulnerable we would be if either of us was seriously ill for a period that extended beyond our employers’ sick pay schemes. We have a sizeable mortgage and the children are at private schools. I understand we could take out insurance policies to help out, but am not clear what type of insurance would be right for us?
Matthew Hinchliffe of Smith & Pinching responds:
There are two types of insurance policy that might be of interest to you: income protection and critical illness. They are different both in the qualification for support and in the way the support is paid.
Income protection will pay a proportion of your salary for an agreed period if you are unable to work because of illness or injury, including mental health issues. The qualification is generally that you are “incapacitated” and so not able to carry out your normal work.
However, some policies may have exclusions, such as injury from dangerous sports or lifestyle choices such as smoking, so it is important to read them carefully to ensure you have the cover you need. It will usually be set up with a deferred period so that it kicks in when your employer’s sick pay ends. Cover is normally available for anyone between the ages of 17 and 70, although there may be a different upper age limit with some providers.
The pay-out will take the form of regular tax-free payments which continue until you can return to work, reach the retirement date set out in the plan or when you die, whichever is soonest.
Critical illness cover provides a single one-off payment if you are diagnosed with an illness or injury that is specified in the policy, at a severity that will also be specified. It won’t pay out for any other illness or injury, however serious it may be. The list in the policy is likely to be quite extensive but you should look at this carefully and at any exclusions for reasons such as a family history of health conditions.
Premiums for either type of policy will depend on your age and health and vary from provider to provider so it is important to shop around.
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If you are unsure about which type of cover to adopt, I recommend you arrange a full protection review by an independent financial adviser. We can then analyse your vulnerabilities and the cost of cover to ensure that you get the right balance in place.
This is a marketing communication: any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk