critical illness policy vs income protection policy

zebedy

Hi, a question for someone who understands more about these things than I do,

I am single with no dependants and have a mortgage (LTV 60%). I have a very simple will. So, i don't think i need life assurance but do need some cover so if i'm unable to work I could still afford my mortgage.

I've had a Legal&General term assurance with critical illness cover ever since i first got a mortgage and I pay £17.88 per month for this.
I've just been reading Martin's article on Life assurance and saw that he doesn't rate critical illness policies and mentions income protection policies instead but there is no more information.

In my situation would you suggest switching to an income protection policy and do you think i can get it for less?

lisyloo

You say you don't need life cover but this is what you have (term assurance) so maybe you need to think about cancelling this policy.

Basically critical illness pays for only certain illnesses and it's a lump sum.
I don't rate it either because
a) you might not get an illness on the list
b) your lump sum won't last long if you are young.

PH I - permanent health insurance kicks in after your employers sick pay ends if you are sick for a long time (or permanently).
I personally rate this more highly for 2 main reasons.
a) It will pay out if you can't work (not if you only get certain illnesses).
b) It will pay until retirement (when your pension kicks in) so protects you for a long time.

I don't think you could get it for less, so you have to decide whether you really want it. Another option is simply to fall back on the state or family in bad times.
I'm not saying this is a great option but just making you aware that you do have options. They may not be ideal, but if you would really be stretching yourself then clearly you have to think about it.

Also I would definitely advise checking what your employer offers.
I get PHI for free from my employer so don't need to pay for it.
Also don't confuse PHI with private medical insurance which pays for healthcare.
PHI is to protect your income not for private medical care, so make sure that when you are talking to people (HR maybe) about "health care" that you are talking about the same thing.

Thomas_Crown

lisyloo wrote: »

PH I - permanent health insurance kicks in after your employers sick pay ends if you are sick for a long time (or permanently).
I personally rate this more highly for 2 main reasons.
a) It will pay out if you can't work (not if you only get certain illnesses).
b) It will pay until retirement (when your pension kicks in) so protects you for a long time.

PHI kicks in at the end of the'Deferment Period' which may or may not coincide with the end of an employers sick pay. I took out PHI with a 52 week deferment period but later my employers shortened the maximum sick pay period to 26 weeks.

a) agree

b) It will pay out until the policy 'end date' as agreed when you take out the policy.


PHI can be paid alongside an ill-health pension but your total income would be limited to 75% of that when you were working. I understand that 75% may be the legal limit so there would presumably be nothing to stop an individual company setting a lower limit. You may also be entitled to 'Incapacity Benefit' but that will also be included in the 75% of previous earnings calculation.

dunstonh

I've just been reading Martin's article on Life assurance and saw that he doesn't rate critical illness policies

Quite a few of us have been critical of Martin's stance on CI as it appears to be based on inaccurate information. The claims stats are not far off life cover and whilst I personally wouldnt prioritise CI above PHI, it is certainly not an option that should be disregarded.

The strange thing is that MPPI has far worse claims stats than CI and the chances of claiming are less as well. Yet you dont see similar things said about MPPI.

homer_j_3

often CI cover is cheaper with term cover too, which needs to be considered?

zebedy

Thanks everyone for the replies.

After careful consideration I have actually decided to stick with the policy I've already got: Level term with critical illness cover with garunteed fixed premiums