Think about insuring against ill health
If you're unable to work due to an illness or an accident, paying your mortgage and household bills could get tough.
There are two types of insurance policy that could help you with this problem: critical illness cover (CIC) and income protection insurance (IPI) - formerly known as Permanent Health Insurance (PHI).
1. Consider critical illness cover - CIC usually provides a one-off tax-free payment if you're diagnosed with an illness or condition which is specifically covered by the policy. You can only claim within the term you have chosen. The lump sum can be used as you wish. You could use it to cover everyday expenses, fund private treatment or provide an income.
CIC policies vary from one company to another. Some may cover more illnesses than others so it's very important that you read the terms and conditions before you sign up.
2. Income protection insurance - IPI works very differently to CIC. As the name suggests, it's designed to replace your income if you're unable to work as a result of any illness or accident. IPI pays out a monthly, tax-free payment until you can return to work or you retire.
Most IPI policies will provide around half to two-thirds of your gross salary as a maximum benefit. But since you receive this amount tax-free, the payout shouldn't be far off your normal take home pay.
Again the cover provided by IPI varies from company to company so be prepared to wade through the terms and conditions and look out for any exclusions or restrictions.
The premium you pay for an IPI policy will be influenced by numerous factors including the ‘deferment period' which can have a huge impact on cost. This means the longer you're able to defer taking benefits the lower your premiums will be. The payout can usually be deferred for one day or by one, four, eight, 13, 26 or 52 weeks. You decide how long you can wait depending on other cash reserves you may have or benefits you might be entitled to from your employer, for example.
3. Think about insuring your life AND your health - If you have financial dependants you should think about insuring both your life and your health. You can get quotes for life insurance and CIC combined into one policy which may work out cheaper than buying to seperate policies for each. You can compare quotes for life cover and CIC using the lovemoney.com life insurance service.
Having said that, if you buy a combined policy a claim can only be made once - either on diagnosis of a critical illness or on death, but not both. In this way, the policy will only pay out once. However, if you buy life cover and CIC separately, you could potentially claim twice - once for illness and once for death - which effectively provides double the cover.
You should compare the costs of combined and separate policies. You may find two seperate plans are only a little more expensive, but provide a lot more cover.
Read Why you don't always need life cover to find out more.
Compare life insurance policies using the lovemoney.com life insurance service.
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