Protection
In the insurance world we use the term 'Protection' when we talk about protecting people from the financial hardships which result from certain life events. These sort of protection products are also seen as much more permanent arrangements than those which are simply annually-renewable contracts (of the kind found on our 'General Insurance' tab).
We generally accept that we need to insure our cars and our homes. What we often overlook is the need to insure ourselves. Despite that fact we are far more important than the metal we drive around in or even the bricks and mortar we live in, we often don't see ourselves as a priority. Without us in the first place, none of the rest really matters.
The main types of protection products are:
- Life Insurance
- Critical Illness Cover
- Income protection
See below for further details and definitions of each area.
Ask yourself the following questions:
Do I:
- have family who rely on me financially;
- have a non-working spouse;
- have a mortgage and/or other significant borrowing?
Have I:
- moved house recently;
- had a new baby?
Could I:
- manage if I had a serious illness;
- manage if I couldn't work?
Am I:
- likely to have an inheritance tax liability when I die?
If you already have insurance:
- when was it last reviewed and have my circumstances altered since I took it out;
- am I paying too much for it?
If you answer yes to any of these questions then you need a review.
About Life Insurance
If you had died today would the people you left behind be looked after in the way you would wish, or would the distress of your loss be compounded by financial worry?
If you need cover for a fixed period only, 'Term Insurance' is what you're looking for. This is relatively low-priced cover for a specific period. It can be what's known as 'Reducing Term' or 'Level Term'.
Reducing Term is the cheapest of all, as it is used when the life needs to be insured against a reducing liability. This means that the Insurance Company's exposure gets less and less over time (hence it is cheaper). This kind of cover would typically be taken out in conjunction with a repayment mortgage or a loan, where the debt (and so the sum needed to clear it) reduces down to a nil balance over a period of time.
Level Term cover is where a sum assured would pay out the same amount of money at any point within the term that a claim occurred. For example, with an interest-only mortgage, the debt owed would be the same on the last day as it had been on the first, so the cover needed to clear that debt would need to be level throughout the term. An alternative example would be where someone might want to insure their life until their youngest child was, say, 18 or 23. They might like the cover during this period to stay at the same level, not reduce.
There is a third type of Life Assurance, and that is called 'Whole-of-Life'. As its name suggests, this cover would run throughout a person's life, not just for a specified period. You might notice that we have switched from calling this 'Life Insurance' to 'Life Assurance'. Generally, companies call whole-of-life policies 'life assurance' because, whereas your beneficiaries might make a claim under a term policy, they will make one - sooner or later - under a whole-of-life plan (provided the premiums have been maintained, of course). For this reason, this kind of insurance is the most expensive, as one day it will pay out.
Whole-of-life plans might be appropriate where someone is going to be financially dependent on someone else for the rest of their life. It may also be appropriate in some kinds of tax planning situations. This sort of cover sometimes contains an investment element.
All life policies can be taken out as single or joint-life plans.
About Critical Illness Cover
You might well already be insured against death, but what about insuring yourself in case you live?
Critical Illness Cover is a relatively recent kind of offering (at least in insurance terms). It is designed to pay out a lump sum (like life cover does), on the occurrence or diagnosis of certain listed 'critical conditions'. These are serious conditions, which might involve a substantial (or even permanent) period of time off work, and might well alter your future capability to live life in the same way, or to the same degree. In some cases they are life-threatening conditions, but ones which you have a good chance of surviving.
Insurance Companies realized some time ago that actually surviving some conditions could leave you (and your family) in a very poor financial position. Also, one of the major obstacles on the road to recovery is financial pressure. Critical Illness Cover buys people the luxury of time, in order to truly get better, and not have to rush back to work and potentially exacerbate their illness.
In its infancy, this kind of cover typically only included six critical conditions (things like heart attack, stroke, etc.). Nowadays, owing to the competition between the Insurance Companies, it is more common to see 25-30 conditions covered.
Critical illness cover can be taken out as a stand-alone policy on a single life basis. Alternatively, it is possible to combine this type of cover with any of the sorts of life plans outlined above. In this case it can be written as a joint life policy.
About Income Protection
Your greatest asset is yourself. What if that asset can't bring in any income?
Income Protection Plans, sometimes referred to as Permanent Health Insurance (PHI) policies, are for replacing lost income, due to being unable to work as a result of sickness or injury. (N.B. They are nothing to do with redundancy cover please see under the 'General Insurance' tab for this kind of plan.) Insurance Companies will let you insure a certain percentage of your income (the amount varies between insurers, but is typically between 50 and 60% of your taxable earnings).
You can choose the period of insurance you want, which you may set to run any length of time up to normal retirement age. You can also choose your deferment period (the length of time before your benefit starts), to coincide with such things as how long you can manage on savings, or how long an employer might pay you while off sick. As you might expect, the monthly premium not only depends upon the size of benefit you require, but also on how long you wish the plan to run and how long a deferment period you are comfortable with (these can typically be set at 1, 3, 6 or 12 months).
One of the best things about these kinds of policies is that they can run for a long time, without the need to renegotiate terms. This means that once you have been accepted for a plan, no matter how many claims you have during the life of that plan, the Insurance Company cannot cancel it (provided you keep up-to-date with your payments, of course). Hence this cover's other name, 'Permanent Health Insurance'. This is unlike an accident and sickness plan, which is an annually renewable contract (a bit like car or home insurance is). We do offer these as well, but they are to be found in the 'General Insurance' area.
Income Protection Plans are individual policies, so cannot be taken out in joint lives (unless taken out as part of a multi-benefit plan which some companies offer -we can look at one of these for you if you if it might be appropriate).