Reviewing life insurance. Should I add critical illness cover?

robaber

Hello

I currently have life insurance and income protection. They are separate policies. 

I don't have critical illness cover. 

I recently had a free consultation with a financial advisor. They suggested that I also take out critical illness cover. 

I was surprised by this as I thought my income protection would help cover a proportion of my income if I was unable to work. They explained that the critical illness cover was a good compliment, as it would help with any expenses, private medical treatment I chose and help take pressure off during a difficult time. 

I understand that I could add this to my life insurance, my income protection or a separate policy. 

This has led to me reviewing my life insurance. It is 10x my salary, is not inflation linked and lasts until my child is 21. I am now wondering if I am to change it to include critical illness cover, if I should also increase the term until my partner retires and or make it inflation linked. 

My income protection is untill retirement and inflation linked. 

This has all left me with questions:

1) should I take out critical illness cover on top of my life insurance and income protection. 
2) if so, should I add it to the life insurance, income protection or a stand alone policy. 
3) If I add it to my life insurance, should I have it only pay out once or for both claims. 
4) Should I make it inflation linked. 
5) Should I increase the term of my life insurance for when my child is 21, to my partner's retirement or as long as possible. 
6) should I add my child to the critical illness cover. 

Any thoughts or suggestions would be welcome. 

tacpot12

Critical Illness protection is a complimentary product to income protection, and much less important than it to my mind. If you are managing financially, and want to provide the best protection for your partner, then adding critial illness protection for them would be one way to do it. I would get quotes to add it to both of your existing policies and as a standalone, and pick the one that seems the best. If you add it to your life insurance, you will want it to pay out a good lump sum on diagnosis of a critical illness (e.g. £30k), and the full policy amount if you die for any reason. Any linked arrangement that only pays out a lump sum on diagnosis but nothing afterwards, is a bad idea. 

Most couple's need for life insurance is liked to the need to payoff a mortgage and to cover the loss of income if their partner dies. Working out how much is needed to cover for the loss of income can be difficult. First you need to allow for the fact that working carries many costs, such as clothing, transport, additional cost of meals, tax, NI, pension, etc. If you were to die, and your partner wanted to replace the income that you brought to the family, they could deduct all of these from your salary, except for pension contributions, as they would probably want to have these to contribute to their own pension. 

Then you need to workout what pot of money would provide that income until your retirement age. The size of the pot needed will decline over time, as will any mortgage, so would be unusual to need to link life insurance to inflation.

The term of your life insurance needs to be discussed with your partner. Ending the policy at the 21st birthday of your youngest child might leave them with a problem if they run into any ill health themselves. In my experience, ill health seems to hit people shortly after aged 50 if it is going to arrive early. I think I would look to make sure that it lasts until their retirement age if you can afford this. This will allow them to build up their retirement savings if anything happens to you.

I would add your child to the critical illness cover if you can afford to do so, unless you have savings of a similar amount to what the  critical illness might payout. If a child falls ill, all bets are off regarding savings.