Help me make sense of my policy

YoungGentry

Hi MSI community,

I started reviewing my policy, as my new workplace doesn't provide income protection, and felt it was a bit expensive.

Key Stats
Provider:Vitalitylife

Cost: ~30quid
Cover: 130k LI + 130k CI
Purpose: Cover the mortgage
Dependents: None
Term: 17 years, level

1. As a fit and active (jogger, weight trainer) under 30 male is critical illness of this level needed. What is the general consensus?

2. Is CI a form of income protection? They seem the same.

Any advice would be greatly appreciated.

dunstonh

1. As a fit and active (jogger, weight trainer) under 30 male is critical illness of this level needed. What is the general consensus?

my two youngest claimants under CIC were under 30 and fit. CIC is heavily priced on age. Its cheap in your 20s but usually too expensive in your 40s. So, buying young can make sense.

2. Is CI a form of income protection? They seem the same.

No. There is no similarity. CIC is a payment of a lump sum on diagnosis of a specified critical illness.

YoungGentry

dunstonh wrote: »

my two youngest claimants under CIC were under 30 and fit. CIC is heavily priced on age. Its cheap in your 20s but usually too expensive in your 40s. So, buying young can make sense.

No. There is no similarity. CIC is a payment of a lump sum on diagnosis of a specified critical illness.

Thank you for your informative response. Does it make sense to match the life insurance? If i recover then the amount doesn't make sense, cover a year's income seems more sensible.



Also CI seems to be more heavily discussed, I assume it is better than IP?

csgohan4

IP is far superior and cheaper than Critical illness IMO, it pays out until retirement age and you can set how much it pays, however max is generally 60% of your income gross.


The payments are tax free which is handy.


if you have money, get CIC and Income protection as well, but if not I would favour IP over CIC any day.


Plus CIC only covers a fixed range of conditions and not if you had a car accident and unable to work ever.

YHM

Who gave you advice on the policy when you set it up?

YoungGentry

YHM wrote: »

Who gave you advice on the policy when you set it up?

The FSA at Vitality

dunstonh

YoungGentry wrote: »

The FSA at Vitality

FSA is not a recognised term. I suspect you mean financial services adviser. Whereas the correct term is FA for restricted advisers (like tied agents to one provider or a panel or have any form of restriction in place) or IFA where the adviser is independent. However, Vitality do not employ any financial advisers. Just sales reps.

In the general pecking order, proper income protection (known as permanent health insurance or PHI for short) is above critical illness cover. PHI is not limited to a list of specified critical illnesses. It is linked to the ability to work (care needed as there are budget plans that have more clauses and comprehensive plans that go above and beyond the standard).

The best case scenario is to have life assurance, PHI and CIC. Budget allowing and assuming you have financial need for those things. CIC and PHI do not overlap.

Broadly speaking, we see more CIC claims than PHI but that is purely because more people have CIC plans. Life assurance sees the least claims. Hence why life assurance is so much cheaper than the other two.

CIC sum assureds are usually set to cover repayment of debts and an excess amount to cover any modifications needed to house or a cost of moving (i.e. to a bungalow) in case the critical illness is debilitating. We did have someone who had a CIC payout who was back at work a week later and just needed ongoing monitoring for a period and a change in lifestyle habits. However, often the impact the far greater.

Aretnap

YoungGentry wrote: »

Also CI seems to be more heavily discussed, I assume it is better than IP?

CI is a "sexy" policy because it pays out a lump sum which sounds like a lot of money. A policy which offers to pay 70% of your monthly income sounds less exciting than one which pays out a small lottery win... but if you're unable to work for a couple of decades then the latter policy is probably more valuable.

Plus CI only pays out for a pre-defined list of illnesses, mainly "dramatic" ones like heart attacks, cancer, loss of limbs etc. However two of the biggest reasons people are off work long term are less dramatic - musculoskeletal disorders (back pain, arthritis etc) and mental health issues (stress, anxiety, depression etc). Neither would get you a penny from a CI policy but would be covered in full by a good income protection policy.

So I would not agree that CI is "better" than IP - they have different purposes and the ideal would be to have both, but if you have to choose Ok would prioritise a good income protection policy.