A wide range of insurance is available to provide financial protection in the event of death or incapacity. Having suitable protection in place is particularly important if large commitments are being taken on board or if you have dependants such as a spouse and children who are reliant upon you for financial support. The most common forms of protection are as follows:
Whole of Life Cover
The plan will pay out a cash sum whenever you die as long as you keep paying the required premium. These plans are expensive because they will by definition eventually pay out the full sum assured and the only question is when this will occur.
The plan will only pay out on death occurring within a defined period of time. Provided you survive to the end of the term the cover will cease and because the insurer may not have to meet a claim the cost of the plan is less expensive than one offering cover for life.
Convertible Term Assurance
As Term Assurance, but gives you the option to take out a new form of life assurance cover, at any time before the expiry date of the original policy. The advantage to the policyholder is that they can rest assured that further cover is available in the future if required, regardless of their state of health.
Renewable Term Assurance
Gives you the option to take out a new contract, without evidence of health, for a further term when the original contract expires. The insurer will charge an extra premium for this option because they take the risk that policyholders in poor health will be more likely to renew. The advantage to the policyholder is that they can rest assured that further cover is available in the future if required, regardless of their state of health.
Mortgage Protection (Decreasing Term Assurance)
The sum assured decreases steadily over the term of the plan. Mortgage Protection contracts are suited to protect repayment mortgages where the loan gradually reduces over time as capital is paid off. The advantage of such plans is that you do not pay for surplus cover in later years when it is more expensive due to age. Premiums are correspondingly cheaper but because cover decreases the plan cannot easily be adapted to other uses. However, this cover is not likely to be of use should you increase and/or extend your mortgage, as the sum assured will reduce at a different rate to your new mortgage balance. This type of cover contrasts with Level Term Assurance, where the sum assured remains constant throughout the duration of the contract.
Family Income Benefits
As Term Assurance, but the payment upon claim is made as a regular income (normally monthly or quarterly) until the end of the term. This provides reducing cover, as the maximum potential amount that can be claimed at the start of the plan is greater than at the end of the term. As a consequence this plan is competitively priced.
Permanent Health Insurance (PHI)
Also known as ’Income Protection’ cover, it is designed to pay a benefit if you are unable to work long term due to accident or illness. The initial period (known as the ‘deferred period’) after a claim is made is not covered and this can be selected to tie-in with when your income would normally stop - usually between 4 and 52 weeks. As a rule, the longer the ‘deferred period’, the cheaper the cover. You can select when the benefit finishes and this would normally tie-in with when you intend to retire. If you need to make a claim, the benefit is paid out for as long as you are incapacitated, if necessary right through to the expiry date of the plan.
Critical Illness Cover
This is designed to provide a payment (can be an income but more commonly a lump sum) if you suffer from an insured critical illness such as: heart attack; stroke; major cancer; permanent disability and a long list of other serious conditions. This protection can be arranged on its own or in conjunction with life assurance and is usually arranged over a defined term, after which it will expire.
This is designed to pay a set amount of benefit should you be made involuntarily redundant or unemployed. Usually, the benefit will not be paid for the first 30 or 60 days after being made unemployed and the benefit will be paid for a maximum period of, typically, 12 or 24 months.
Private Medical Insurance
A simple insurance where the insurer will pay towards or for (depending on treatment and level of cover) medical expenses incurred during the process of diagnosis and treatment/surgery as agreed to by the insurer’s terms and conditions and areas the policy covers.
Often Private Medical Insurance will not cover a dental program. Dental Cover can be arranged as a completely independent insurance in order to provide protection against those unexpected bills from your dentist.
Long Term Care Insurance
This insurance is designed to provide for the cost of long term care provision when a person becomes ill or suffers a disability that makes them unable to carry out their activities of daily living. This is most likely, but not always, to affect the elderly. The insurance can cover the costs of care at home, whether in the form of domestic help or medical treatment, or in a care/nursing home as is necessary.
It is important to understand that this protection provides cover where medical conditions are of a long term nature, which will not normally be covered by private medical insurance which is designed to provide protection for accute conditions where recovery is anticipated.