Critical illness insurance

coggy_2

Hi

Is it worth getting critical illness insurance?

We are only getting a £30,000 mortgage and wandering if we could get away without it until we get a bigger mortgage in 3 years time?

Any opinions really welcome

Thanks
Coggy

lisyloo

My own opinion is that Permanent Health insurance is much more worthwhile.

Critical illness only covers certain illnesses e.g. heart attack or stroke and gives you a lump sum.

Permanent health insurance covers any illness that stops you working and gives you an income until retirement.

A lot of people don't seem to realise that their sick pay at work runs out after 6 months so if you were permanently sick/disabled/accident then you would have no income (except benefits) after that time.

The first step in this is to examine what your employer(s) offer(s).
If you don't know then ask.
Sometimes pension schemes have PHI attached.

Obviously you don't need to get any insurance that you've already via your employer (although important to review when moving jobs).

My own opinion is that PHI is more valuable than critical illness for 2 reasons.
Firstly PHI gives you the income and not a lump sum (which will run out if you try to use it to live on), plus critical illness only covers certain conditions.

In my opinion it is quite hard to insure yourself for everything and is quite expensive, so you need to think of the most likely risk to yoursleves.
If you are young then you are probably more likely to get made redundant than get permanently sick.

Personally, my own order of priority would be - life ins (fairly cheap), redundancy, sickness and accident and then possibly critical illness.

I don't have critical illness cover myself.

That's all in my opinion, but definitely I would say check out what you have from your employer(s) first as you don't want to pay twice.

If you have a sick pay scheme at work then find out how long it pays out for. If you are getting PHI then make sure it kicks in after your sick pay scheme, that way it will be cheaper. For exmaple - if your company sick pay scheme pays out for 6 months then the PHI so that it kicks in after 6 months.

Also make sure you are clear on the difference between PHI (permanent health insurance - pays and income if you are off sick after the company sick pay scheme has run out), PMI (private medical - pays for operations), CIC (critical illness - gives a lump sum for certain serious conditions).

lisyloo

A further note - there are 2 types of PHI.
Schemes that pay out if you can't do ANY job and schemes that pay out if you can't do YOUR specific job.

The second is better but obviously more expensive.
It's something worth considering.

For exmaple if you are a computer programmer then would you want to be forced to work at McDonalds etc.

Just be clear on what you are getting.

coggy_2

Many thanks

I have my own Ltd company and pay myself.

I do have a personal accident insurance included in my liability insurance.

mmmm thanks a lot to think about

Coggy

Pal

Alas PHI is not only more valuable, it is far more expensive to obtain and make a claim from.

Critical illness and PHI are completely different. CI is similar to personal accident insurance, it is designed to pay a lump sum if something bad happens. This lump sum allows you to pay off any major debts (credit cards) and spend money on any modifications you need (e.g. a stairlift in your house or a wheelchair ramp).

PHI is designed to replace a portion of your income if you cannot work.

As a result the best answer is to have both types of insurance. It is just a matter of how much risk you want to take with your financial situation in the event that something bad happens.

lisyloo

I do have a personal accident insurance included in my liability insurance.

This would cover you for an accident but not for just getting ill.

Also I think you would probably find that this is a lump sum rather than an income (I'm guessing so you ought to check but whenever I've seen it, it's been a lump sum).

The problem with lump sums is that they will run out if used for income, especially if you are young.

As an example if you needed to replace your income for several decades it could easily be over £1 million.

Ideally the risks you would want to cover if there was no limit on costs would be

death
sickness
accident
redundancy
one off costs for illness e.g. house modification
long term personal care for sickness

Unfortunately it all costs money so in the vast majority of cases you have to reach some sort of trade off that you are comfortable with.