Protection

This pays out a lump sum or monthly amount to dependants if the planholder dies while the policy is in force. The majority of plans will also pay out following diagnosis of a terminal illness. ie. if you have less than 12 months to live.

As well as ensuring that your mortgage is covered you should make sure that your family have sufficient money to maintain their current lifestyle.

One in four men and one in five women will develop one of the conditions covered by a standard critical illness policy before their 65th birthday (source: Hanover Re 1998).Lifetime risk of cancer is 1 in 3 (source Cancer Research UK) Every 2 minutes a Heart Attack occurs in the UK (source: British Heart Foundation 2004).

Frightening statistics but it could happen to you, me or any one. No body is immune to these illnesses. Sure we can eat healthy, exercise regularly, not smoke and reduce the chances but none of us can be sure that "it won't happen to me". Insurance certainly won't reduce the chances but it can reduce the harm caused.

Critical Illness insurance - pays out a lump sum or monthly amount on the diagnosis of a specified serious condition, such as heart disease or cancer. The majority of policies also provide for a pay out if your child suffers from a critical illness. The amount of cover varies although is usually around £20,000. The problem with critical illnesses is that it is difficult to picture how the illness may effect you or your family. When you die you're dead but with a critical illness maybe you will be able to return to work, maybe you need to move, or possibly you may get a degenerative illness that means you never work again and require permanent and long term care. People often overlook this area because they believe they would be okay, but think of people you know who have developed serious illnesses, would an insurance policy have helped them? Ideally you should ensure that you cover any outstanding debts and also a years salary, although critical illness insurance can be quite expensive and sometimes people elect to have full life cover and only part of their debts covered.

This is likely to have the greatest impact on you and your family. Imagine if you were never able to work again? Your employer may pay you for up to a year but what happens after that? Long term incapacity benefit is only £72.15 per week and it certainly would not take long before you exhaust your savings.

The only real option is to take out ‘income protection insurance’.

Income Protection Insurance – Provides a regular income until the end of the policy term so long as you are unable to work because of accident and illness.

Income protection insurance can cover up to 75% tax free of your pre-disability earnings, can usually run to your chosen retirement date and can be indexed each year so that the amount paid retains the same buying power

 

Although long term events are most likely to really cause problems, many people can suffer significantly from short term illness. You must ask yourself the question “what would happen if I was unable to work?”. Make sure you consider how long your employer would continue to pay you for and what would happen if you were still not back at work after that date. Basic sick pay and incapacity benefit is only £66.15 per week. If you earn £34,000 a year this is only 10% of your current gross income!

So if your employer won’t pay you, and you don’t think the state would pay enough then you’ll have to look elsewhere. Do you have enough savings to cover you?

If you feel that short term illness would not affect your standard of living and ability to pay your loans etc then great you probably don’t require protection, if not you should certainly consider this area.

Accident and Sickness Insurance – Provides a short term regular income of up to two years if you are unable to work due to accident or sickness.

 

If you are made redundant through no fault of your own then it is possible to receive a monthly income for a period of time (up to 2 years) until you find employment. This is a short term insurance and will stop paying after you get a new job or the pay out term expires.

When looking at unemployment insurance you have to be really honest with yourself. How long would it take you to get another job if you were made redundant? If you feel that it could take some time and you would struggle to maintain mortgage and other payments during that time then you really must consider unemployment cover.