Life, critical illness, income protection

BrOz

Hello everyone. 

I'm after your thoughts on life insurance, life insurance with critical illness cover and income protection insurance. Is this something that you personally have? 

I'm buying a new home and receiving the hard sell of life insurance from my mortgage broker with critical illness cover for myself and husband at £70 a month. It seems really steep to me. 

I was thinking about income protection but am I being over cautious? Myself and husband are both nhs nurses so so our jobs are definitely secure.we get 6 months full pay and 6 months half pay for sickness over 12 months. So if we were unwell and unable to work would need the money after that. 

I'm just not sure about all these insurance types as they all have limitations anyway. Not sure if I would be wasting my money if I got all of the.I would shop around for quotes first though! £70 seems excessive to me. 

jasdev

You've asked the question I came here to find answers to!

I didn't really receive a hard sell myself, but I was left to think things over for a bit.

I can choose one or both of life and critical illness cover. The life cover would require two separate policies, one to pay off my new mortgage, one to pay off Help to Buy as I am using the equity loan to buy a property.

Critical illness cover is far & away the most expensive product I was quoted for.

Like you, I also feel that I'm secure (as secure as one can be in this day and age, touch wood) in my employment, and I don't know the details but I believe I have decent protection in the event of illness or injury that keep me from doing my (desk-bound) work. Also, I took note that viral illnesses (e.g. COVID-19) do not receive critical illness cover; this is because they can affect different people in vastly different ways.

And I've also got a small emergency fund for meeting my outgoings if I were to, say, lose my job.

With the life cover, my mortgage and/or the equity loan would be paid fully if I were to die. Something to consider, therefore, if I had a partner or children I wanted to keep from becoming homeless. But since I have neither a partner nor children (that I'm aware of!), and none of my next of kin would seem to need an identikit new-build property if I died, I'm wondering how much I'd value that payoff.

I don't have any thoughts about income protection, but I save a lot so I'd probably find it unnecessary.

Ultimately it seems to be a deeply personal decision: how much would you stand to lose if worst came to worst, and would the value of the insurance payoff be greater than the loss you would anticipate suffering in those circumstances?

I guess you might also want to ask yourself, since you both work in the same field, if your husband or yourself were to become so unwell that the other half would need to become their full-time carer, would you still be able to earn enough as a sole earner to meet all your obligations? Or would that income protection be worth its weight in gold?

BrOz

Hmmm it's tricky isn't it. From my understanding the critical illness cover only pays out if you have a life expectancy of less than 12 months. Also to note I'm sure the NHS has a death in service payout too depending on how many years you worked for them. 

Aretnap

BrOz said:

Hmmm it's tricky isn't it. From my understanding the critical illness cover only pays out if you have a life expectancy of less than 12 months.

You misunderstand. Critical illness cover pays out if you are diagnosed with any of a list of diseases of specified severity. The list varies from provider to provider. They tend to be fairly serious illnesses (heart attacks, strokes, cancer, MS etc) but there is no requirement for them to be terminal.

You are probably confusing critical illness cover with the terminal illness benefit which comes with some life insurance policies. Essentially this benefit means that the life insurance will pay out if you are diagnosed as having less than 12 months to live, rather than when you die. It is separate to any critical illness element. 

Critical illness cover is quite expensive, certainly compared to life insurance, but that's because it is much more likely to pay out than life insurance - something like 4 times as likely on average. You are more likely to have a non-fatal heart attack than a fatal one; you are more likely to get treatable cancer than terminal cancer etc etc, especially if you are of working age. 

Personally though I would suggest that you prioritise income protection over critical illness cover for a number of reasons. First of all it is potentially more valuable - CI cover comes with a large lump sum but if you are unable to work for the next 20 years how long would it last? IP insurance would cover your salary for many years, potentially until retirement age, and this is likely to work out at a lit more than the CI payout. And secondly CI cover won't pay a penny of you get a serious illness which is not on the list of conditions - IP will pay out more or less regardless of the nature of your illness. Two of the most common reasons people are off work long term are mental health problems (stress, anxiety, depression) and musculoskeletal disorders (arthritis, back pain etc). Neither would get you a penny from a CI policy; both would be covered in full by income protection. 

chrisw

Aretnap said:

BrOz said:

Hmmm it's tricky isn't it. From my understanding the critical illness cover only pays out if you have a life expectancy of less than 12 months.

And secondly CI cover won't pay a penny of you get a serious illness which is not on the list of conditions - IP will pay out more or less regardless of the nature of your illness. Two of the most common reasons people are off work long term are mental health problems (stress, anxiety, depression) and musculoskeletal disorders (arthritis, back pain etc). Neither would get you a penny from a CI policy; both would be covered in full by income protection. 

This isn't necessarily the case with Critical Illness policies. Sometimes they pay out if the condition means you are unable to work but you need to check whether the policy covers you for being unable to do your current job or unable to do any work at all. 

Our critical illness policy paid out when my wife was unable to work through stress and developed a neurological condition. Fortunately the policy wording of ours was if you are unable to do your present job. A consultant confirmed that she would be unable to return to her current role so they paid out. 

It paid off the mortgage so reduced the pressure quite a bit.

csgohan4

If you can afford it, then CI would be useful, I don't have it myself, I put the excess premiums to maxing out the Income protection portion and increasing the life insurance payout. 

Otherwise I don't find CI beneficial for me, alot of exclusions and they even grade MI based on severity and Troponin levels, so no thanks. 

you might find it useful for yourself. 

BrOz

Ah yes I am getting confused with critical illness and terminal illness. Thanks for the information. I'll look into income protection and see what the details of that would be. I was reading about critical illness and it said that to be classed as able to do my job I would need to be able to perform 3 of my usual tasks ... Thats so varied because its a nursing job. Some things are basic and some more physical! 

Weighty1

Personally, I have various life insurance policies, income protection AND critical illness cover.  About 6-months after arranging the insurance I was diagnosed with Type 1 diabetes and now no insurance company on the market would offer me long term income protection or critical illness cover so I'm extremely glad I reviewed it when I did but actually wished I'd taken higher levels of cover than I have in place now that it's not available to me.

newkitchenfund

I personally don't think critical illness cover is worth it, especially if you are in secure employment with good sickness benefits. It's a draw for people because the lump sum sounds very appealing, but Income Protection is usually a better bet because it lasts as long as you need it. 
I would definitely recommend though that if you are purchasing life insurance, to go for a policy that pays out on diagnosis of a terminal illness. Having your mortgage paid off if you are told that you have only a few months to live will be enormously helpful at such a dreadful time for you and your family.
I really feel that critical illness cover is the extended warranty of the personal insurance world - designed to make money for the insurance companies by preying on people's worries. 

Sandtree

newkitchenfund said:

I personally don't think critical illness cover is worth it, especially if you are in secure employment with good sickness benefits. It's a draw for people because the lump sum sounds very appealing, but Income Protection is usually a better bet because it lasts as long as you need it. 

I personally agree that PHI is more important than CI cover however if you have secure employment with good sickness benefits then that's when PHI potentially isn't required (because its come from your employment) whereas a lump sum to make adjustments to your home to cope with your new limitation etc is more likely to be useful.

Not sure why paying off your mortgage or having a lump sum is less helpful if you've a prognosis of a couple of years or a highly uncertain prognosis -v- the requirement of a less than 12 month survival prognosis for a terminal illness payout. 

Its certainly secondary, in my view, to ensuring your income will continue to flow and there are limitations due to fundamentally how the policy works in terms of conditions/ how severity is measured -v- time/progress, but to say its similar to warranties is over egging it by a long way... given how expensive CI is I doubt many will forget they are paying it each month and let it autorenew (not a concept in PI) for years after selling/disposing of the appliance (again no equivalency in CI)

newkitchenfund said:

I would definitely recommend

I hope you have the appropriate permissions and have gathered the demands and needs of all those potentially reading this post before giving your recommendation to readers.

Weighty1

newkitchenfund said:

I personally don't think critical illness cover is worth it, especially if you are in secure employment with good sickness benefits. It's a draw for people because the lump sum sounds very appealing, but Income Protection is usually a better bet because it lasts as long as you need it. 
I would definitely recommend though that if you are purchasing life insurance, to go for a policy that pays out on diagnosis of a terminal illness. Having your mortgage paid off if you are told that you have only a few months to live will be enormously helpful at such a dreadful time for you and your family.
I really feel that critical illness cover is the extended warranty of the personal insurance world - designed to make money for the insurance companies by preying on people's worries. 

There's plenty of examples when critical illness can be extremely worthwhile.  Imagine a couple whom both work and they both have income protection but no critical illness cover.  One of them is diagnosed with cancer and needs to have treatment which is going to last 12-18/months and involve them being hardly able to get out of bed some days.

The individual with cancer can claim on their income protection but what abou the one who isn't ill?  Are they going to have to continue going to work every day so that their income carries on coming through the door?  Would it not be better to have a lump sum of money which would provide them with the financial flexibility to take unpaid leave from work to support their partner?

What about if money is needed to adapt a home?

What about if a parents child was critically ill and this severely disrupted their ability to work?