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Life Insurance, what type of cover do I need?

life insurance

What is Critical illness cover?

Life insurance, critical illness cover, income protection insurance, payment protection cover; what are they? And more importantly, do you need any of them?

In this article, we give you an overview of each of these types of insurance and help you decide whether you and your family would benefit from having them.


 
What is life insurance?

Life insurance comes in many different forms, but primarily it’s designed to pay a lump sum or regular payments to your dependents if you die while the policy is in force.


 
Do I need life insurance?

If you have children or a partner who depend on your income to cover their living expenses and mortgage payments, then yes, you probably do need life insurance.

If you’re fit and healthy, life insurance can represent good value for money, giving you a high level of cover at relatively low cost. Even if you’re in your fifties, life insurance can be a good option for you too. However, if your employer provides you with “death in service” benefits, you might not need more life insurance, or perhaps just a top-up would suffice.

Remember that life insurance only covers your death. If you become seriously ill or disabled and are unable to work, you won’t receive anything. Also, if you have an existing serious health problem, you may not be accepted for life insurance cover, or if you are, the cost will probably be prohibitively high.


 
What is Critical illness cover?

Unlike life insurance, critical illness cover pays you a lump sum or a regular income if you’re diagnosed with a specified serious illness, including:

  • Heart attack
  • Stroke
  • Certain forms of cancer
  • Multiple sclerosis
  • Kidney failure
  • Dementia

Most critical illness policies will also pay out if you are permanently disabled following an accident or illness.


 
Do I need critical illness cover?

If your family depend on your income to cover their regular living expenses and your mortgage, it’s sensible to have critical illness cover and life insurance in place. That way, you’re covered if you become ill and are unable to work, as well as if the worst should happen and you die.

Some employers include critical illness cover in their employees’ benefits package, so you’ll need to check if you’re already covered. You should also ask your employer how much insurance cover you have under their policy. If you think you will need more to meet your living expenses adequately, you might want to take out a separate plan.

The bottom line is; if you would be unable to support your family if you couldn’t work, then you should take out critical illness or income protection insurance.

Note that existing health conditions won’t be covered under a critical illness policy.


 
What is Income Protection Insurance?

Income protection insurance will pay a percentage of your take-home pay if you are unable to work due to prolonged sickness or disability. Income protection cover applies to illnesses that leave you too sick to work for long periods or mean that you have to give up work altogether.


 
Do I need Income Protection Insurance?

If you are self-employed, you probably won’t receive sick pay. That’s where income protection insurance comes in, covering your living expenses until you can return to work or paying out permanently if you are unable to work again.

While the policy is in force, you can claim as often as you need to.

So, if you don’t receive sick pay through your employer, or you don’t have substantial savings to fall back on, income protection insurance is a sensible option for you.

There are a couple of things to be aware of when you take out income protection insurance:

  • Check the policy schedule for the definition of “unable to work.” That can mean different things under different policies, so always take advice before you buy.
  • You may not receive coverage for any existing health conditions.
  • If you work in a dangerous occupation, you may not get cover.

Income protection insurance can be a minefield, so always ask an experienced financial advisor for advice before taking out a policy.


 
What is Payment Protection Insurance (PPI)?

Payment Protection Insurance (PPI) is designed to cover your regular monthly outgoings if you can’t meet them due to:

  • An accident
  • Illness
  • Becoming unemployed

Be aware that PPI won’t cover you:

  • You have a pre-existing condition
  • You’re self-employed, a contractor, or a temp
  • You’re unemployed
  • You’re retired
  •  You lose your job within three to six months of taking out the policy

It’s important to note that you may have to wait for up to 90 days before you’re entitled to claim on your PPI policy.


 
Do I need Payment Protection Insurance (PPI)?

If you could manage on your sick pay or redundancy pay, you probably don’t need PPI. Also, if you have plenty of money set aside that would cover outgoings such as your mortgage payments, loans, and credit cards, or if your partner’s wages would cover these expenses, you most likely don’t need PPI.

However, PPI could be useful for you if you are made redundant, and you could be out of work for an extended period, or if you have large debts and little or no savings to fall back on.

PPI policies only pay out for a limited period, often 12 months, even though your illness or unemployment period might extend for longer than this.


 
In summary

Life insurance, critical illness cover, income protection insurance, and payment protection insurance are all designed to cover you financially if you are unable to work for a long time because of sickness or disability.

If you have dependents, you should have some form of life insurance. Being protected if the worst should happen and your family loses your income is crucial for the peace of mind of your loved ones and for you too.

If you think you may be under insured, talk to an experienced, independent financial adviser today.

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Crystal Legal Services Ltd, Gawsworth House, Westmere Drive, Crewe, CW1 6XB.

Crystal Legal Services Ltd Authorised and regulated by the Financial Conduct Authority.

Company registered in England and wales. Company registration 6837474. Registered office: Fairfield House, Back Lane, Spurstow, Tarporley, Cheshire, CW6 9TE.

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