By Addy Frederick, Life Insurance & Pensions at LV=
The differences between life cover, income protection and critical illness cover and key things to consider before taking out cover
The life and health insurance landscape can feel like a difficult one to navigate. In fact, new research from the Association of British Insurers reveals that protection products are amongst the hardest for people to understand.
Although these products may sound interchangeable, they insure people for very different life events and, as such, the suitability of each type of cover depends very much on your personal circumstances.
Life cover, income protection and critical illness cover are the three main types of cover, and often aren’t as expensive as people think. Especially if they are in good health, and the younger people are, the cheaper the cover is. There are lots of different types of products available to help fit cover to people’s budget as well as their needs, from shopping around for the best value product or provider, to tweaking what’s covered under the policy to change the cost.
Life cover pays out if the person insured dies during the term of the policy. There are different types of life cover available; term assurance, where the policy runs for a fixed period, usually to cover a mortgage, and whole of life cover, as the name suggests, runs for the whole of your life. You can also set the policy up to pay out as an income every month, or as one lump sum, and have the amount that would pay out set at a fixed level, or decrease over time, usually in line with a debt the policy is covering.
Income protection products pay a regular tax free income if you are unable to work due to accident or sickness. It has become increasingly difficult to qualify for state benefits in recent years, so people need to make sure they could cope financially if they lost an income. Income protection pays out for the length of the policy term (which can be set up until you retire) or until you are well enough to return to work. There are also budget options available that pay out for shorter period of time, usually one or two years.
Critical illness policies pay out a lump sum if you are diagnosed with one of a range of illnesses covered under the policy, including certain types of cancer, heart attack and strokes. Critical illness is often set up to cover a mortgage, and is also often used to help pay for medical expenses or if people need to make changes to their home after a serious illness.
Life cover is the most commonly bought type of protection insurance, although industry experts cite in many cases that income protection is the most important product for people to consider, as someone’s income is what allows them to lead their life and pay their bills.
Before taking out insurance, it is important to assess which products are best to provide cover for both family and financial commitments. It can be a difficult decision with many different providers and products on the market, so people are encouraged to speak to a specialist adviser and discuss their options, and which cover is most suitable for their circumstances.