First time ever life insurance

Legacy_user

My 22 year old daughter is considering taking out insurance for the first time. She still lives at home and is in full time employment. The decision has been prompted by a friend becoming diagnosed with a long term debilatating illness.

The question I'm asking is should she take out insurance at all given she has no major outgoings as yet and her employer will pay her full pay for the first 6 months if she should go off on long term sick?

If she should is it worth it to include Critical illness too?

If you can think of anything else she should be considering instead please let me know.

Thanks

dunstonh

If she has no financial dependents then there is no need for life assurance.
There may be a need for permanent health insurance and critical illness cover depending on her financial position.

magpiecottage

Permanent Health Insurance will replace lost income up to the maximum specified in the policy or a set percentage of pre-illness earnings if lower (allowing for payments from employers, other policies etc.). This is so that there is some incentive to get well and go back to work but it will pay, if necessary, until the policy's expiry date which could be as much as 40 years.

It will pay out for ANY illness that prevents the policyholder working but only a set amount each week or month.

It is the "tortoise" to the Critical Illness "hare" which pays out in full as a lump sum on diagnosis of a qualifying illness. However, if the policyholder is not "lucky" enough to suffer one of the exact illnesses a policy specifies they get nothing.

A couple of weeks ago the FSA wrote to firms about Critical Illness policies, raising concerns that consumers are not being properly made aware that these policies will also not pay out if the condition is not as severe as the policy wording specifies.

In addition (and this applies to ANY insurance) applicants MUST not only answer questions asked honestly but also disclose anything that an insurer might reasonably be expected to want to know prior to a policy going into force even if it is not specifically asked for.

System

magpiecottage can you tell me if she would have to specify her current level of salary when taking out a PHI and if so can she amend the level of cover if she progresses in her career and her salary increases.

magpiecottage

Generally income will be validated at the time of a claim but insurers normally want it specified at outset so there is no obvious overinsurance.

Increases would normally need to be underwritten at the time but some policies allow inflation-proofing.

An independent financial adviser is the best person to ask about specifics, though.