PHI or CI cover?

clairehi

What are the pros and cons of permanent health insurance and critical illness cover?

PHI seems better to me because it pays out if you can’t work due to any illness or accident - which is when I would need money. But how do they assess whether you can work? Whereas CI only pays out on specified conditions, whether or not you are too ill to work

Secondly, with PHI you know you will carry on getting money every month. If you fall ill early on in the policy, the money’s not going to run out (ok so value would become eroded over time I realise) Whereas with CI, you get a lump sum, what do you then do with that to provide an income? More investment advice needed then I guess. How do you know how much CI cover to buy over and above the mortgage? If it’s the same rule of thumb as life cover (10x salary) theres no way we could afford it.

PHI seems a helluva lot cheaper on the face of it. Based on cheapest online quotes which I know may not be accurate, I could get separate policies for DH and I covering a high proportion of salaries (Friends Provident) , for round about the same price as a joint decreasing balance CI policy just to cover the mortgage which would only pay out once (same provider Friends Provident).

lisyloo

But how do they assess whether you can work?

With reports from doctors / hospitals.
In some cases they might insist on you seeing their own doctors.

A few things to note.
Some PHI policies cover you if you can't do YOUR job whereas cheaper ones would only cover you if you can't work at all.
Be careful about this because if you were for example a highly paid surgeon you might not want to end up working in Sainsburys.
Make sure you get the right cover you want.

Critical illness policies are not designed to provide an income.
They are designed to provide a lump sum for e.g. altering the house or possibly going on that trip of a lifetime before you die.
You CAN get an income from a lump sum but if you are young it would have to be millions of pounds to provide a sufficient income for decades.
This isn't what CI is intended for.
Also be aware that CI is for specific illnesses so be aware that you could get something that's "not on the list".

Also note that all PHI has a "deferred period" where they don't pay.
The longer you can make this the better, so check how long your employer pays you sick pay for.
You can even make it longer if you are willing to survive on your own funds for a while.
Obviously the longer this period the less chance of you claiming and therefore the cheaper the insurance.

I agree with you that PHI is much more useful.

MortgageMamma

Agree with Lisyloo

It seems if you are looking for an income replacement to cover inabiltiy to work due to illness or accident permanent health insurance is your best option. BUT, as Lisy rightly points out, there are many different qualities of policy, and deferred periods, cover amount, policy provider etc all need careful planning and consideration. You can index link your monthly income to keep up with the cost of living so the value does not erode over time, you can also ask for something called an own occupation policy, which means you are covered only if you cannot do your own job, useful for highly skilled people that would struggle to do anything else that would pay as much. then there is suited occupation which is basically what it says, i.e. a claimant who was an office clerk for example prior to claim would be expected not to decline employment of a similar nature. Then there is any occupation, which means a barrister could end up and a binman. Obviously whichever option is taken has a bearing on the policy costs.

This is just a simple example for you, and if you can get it for free, I would advise strongly that you take advice.