Critical illness cover, or income protection??

carlito65

Hi,
I'm currently in the process of applying for critical illness cover.

I know martin lewis is not keen on critical illness cover. Mainly because insurance company's don't pay out on all illnesses. This has got me worried.

Would I be better of with income protection?

I have looked into it a little bit. The quote I have had for income protection is £28 per month, and would pay out £750 per month(I think I may need a little bit more than this) until I'm 65. I'm 40 now.

The quote for my critical illness cover is £14 per month, and would pay a lump sum of £25000. I think this would only last for a couple of years.

I already pay £19 per month for life insurance, so if I add income protection to that, I'm going to be paying about £50 per month. Quite a lot I think.

The biggest fear I have is, what would I do if I couldn't work? My wife's salary wouldn't cover the bills.

I was also wandering what help i would get from the Government? if any!

My salary is £26000, I'm Married with a 3 year old child.
Any advice would be gratefully received.

Thanks in advance!!

InsideInsurance

So your take home pay at the moment is around £1,700 exc any bonuses etc are you going to be comfortable going down to £750 per month?

Ultimately you need to see an IFA or protection broker for professional advice given your personal circumstances.

In general, I prefer PHI (the full version of Income Protection rather than ASU thats the budget version) on the basis it will pay out if I am ever unfit to work and so will pay for most things that CI would pay for. Now there are a couple of things that CI would pay for that you may be fortunate enough to be able to continue working with/through but then in my mind I have no issue as I still have my income. There are plenty more things that CI wouldnt pay for but PHI will and if I only had CI I'd be stuck with no wage.

weighty1_2

Personally, I'd always take income protection (the PHI version) over critical illness since it can be easier to claim on and can result in much bigger payouts (£750/month x 12-months x 25-years = £225,000 potential benefits at the start) , however, that's not to say both don't have applications. Discussing their value is really like comparing apples and oranges in reality.

One consideration though is the government help side of things. Chances are, if you have a critical illness claim then you'll not be able to get any financial help since you'll have £25,000 sat in your bank account so will be above the means tested limits. You can get round this by placing the plan into a split trust, however, it would need to be a split trust which also allows you to gift the critical illness benefits to the trust as well as the life cover.

carlito65

I am leaning more towards income protection.

I would probably need more than £750. That was just an initial figure to get an idea of how much it would cost.

The trouble is it is quite costly, I had another quote today for £1000 per month, at a monthly premium of £34. This would pay until I was 67. As I'm already paying £19 for my life insurance, It would be quite a large out going, although an important one I think.

Also, What is the difference between PHI and ASU income protection?

The two people that have given me quotes are Cavendash and life search. Both over the phone, and both come with advice, as opposed to the cheaper quotes where they don't offer advice. Would you say this is classed as getting good advice, or should I contact an IFA?

Thanks for all your advice, this is a bit of a headache for me.

lisyloo

Would I be better of with income protection?

Personally I have always favoured income protection.
PHI will pay you if you cannot work until you retire, die or recover.

Critical illness only pays for certain illnesses.
I see two big problems with CI.
Firstly you could get something not covered and not be able to work.
Secondly it's a lump sum, so it will run out if you're unlucky enough to be ill long term. A lump sum is great for treatment, doing your "bucket list" before you die, altering your house or a short term income, but if won't cover a long term income. Personally I think that makes it a bit of a luxury.
I'm not disputing that it's very nice to have, but as you can see if you already have life ins and PHI then it all starts to get expensive and you very few people can afford to be well insured so you have to prioritise.

InsideInsurance

carlito65 wrote: »

The trouble is it is quite costly, I had another quote today for £1000 per month, at a monthly premium of £34. This would pay until I was 67. As I'm already paying £19 for my life insurance, It would be quite a large out going, although an important one I think.

Also, What is the difference between PHI and ASU income protection?

Its costly because it can payout a lot, if you fell ill in a years time and was never able to work again then for your one years premium (£408) theyd be paying £312,000 and thats assuming you dont index link it.

PHI is the full fat version, its underwritten when you buy it and so its clear what is and isnt covered and it pays out until your declared date (so in your case your 67th birthday)

AS excluding the U for a like for like comparison is the budget version and is not underwritten at the point of sale. Most simply exclude all pre-existing conditions (though a few do cover after a period of a year or so). Most importantly they only pay out for 12 or 24 months and then the payments stop so isnt suitable for protection against major/ long term illness

The U of ASU is unemployment cover, some PHI providers do offer an unemployment bolt on but it is of similar quality to ASU

kingstreet

If looking at PHI, ensure you get "own occupation" cover and not the cheaper and more difficult to claim "suited occupation" or "work tasks" cover.

ACG

Change the deferred period to say 12 months?
Its better to go say 6-9 months without a wage after sick pay than it is the rest of your working life?

If i had to choose i would be looking at PHI, however you can easily argue there is potentially a need for both.

carlito65

The quote I have had is for own occupation, so that's good. Also it pays out till I'm 67, so I guess its the full version.


I think its a good idea to defer the payments to 12
months, to help keep the cost down. I don't know if I'm being neive, but I'm thinking if the worst was to happen. I could call my mortgage provider, and explain about my insurance payout. Maybe drop to an interest only mortgage, or maybe take a payment holiday.

Thanks everyone for your advice, its been a great help!!

SammenForLivet2

Have you looked at Holloway insurance, which provides a lump-sum, when you turn 65, as well as income protection - it's often competitive, as the providers are 'Mutuals' and run for the 'benefit of it's members'.

They are often competitively priced, and personally, I would recommend PG Mutual (http://www.pgmutual.co.uk) (you can apply on-line and get a quote), but there are other providers, such as Cinchester Friendly.

weighty1_2

carlito65 wrote: »

The quote I have had is for own occupation, so that's good. Also it pays out till I'm 67, so I guess its the full version.


I think its a good idea to defer the payments to 12
months, to help keep the cost down. I don't know if I'm being neive, but I'm thinking if the worst was to happen. I could call my mortgage provider, and explain about my insurance payout. Maybe drop to an interest only mortgage, or maybe take a payment holiday.

Thanks everyone for your advice, its been a great help!!

If you look at the difference in premiums between a 6-month deferred period and 12-month deferred period it is usually a matter of pence. On the basis that you'd have to try and survive another full 6-months I'd be surprised if the 6-month deferred option isn't better value for money, even if it is marginally more expensive

macfamilyent wrote: »

Have you looked at Holloway insurance, which provides a lump-sum, when you turn 65, as well as income protection - it's often competitive, as the providers are 'Mutuals' and run for the 'benefit of it's members'.

They are often competitively priced, and personally, I would recommend PG Mutual (http://www.pgmutual.co.uk) (you can apply on-line and get a quote), but there are other providers, such as Cinchester Friendly.

The lump sum payouts from Holloway style plans are normallly pretty small, unless you purchase enough units for it to become more like an investment plan with income protection than vice versa. Also, nearly all friendly societies age band their premiums. Look at how the cost increases exponentially when policyholders reach their 50's and beyond.

Apart from more manual occupations who may not be able to get own occupation cover with a larger insurers, I would nearly always recommend a fixed premium.