Business

Cover yourself for the possible loss of your income

Critical illness insurance covers you against a major health setback that may force you to give up work and lose your income
Michael Kennedy

ROME wasn't built in a day - that was just the builder's original estimate.

Neither is your family's financial security, which is why it's advisable to consider those insurance products designed to keep your family financially safe, and covered against the loss of your income, if you have to give up work. This can be due to severe illness or even worse. They protect your family - that's why they're called the family protection insurances.

Have you covered your family to protect them from all eventualities? If not, there are two main insurance types you may like to consider.

The first and best-known is, of course, life insurance. It's the basic one that gives them a tax-free payout in the event of your untimely death. It makes such sense to have a life policy, but despite that, only 30 per cent of people in the UK have it, according to the research body Statista.

However, the partners of 75 men and 500 women under the age of 50 pass away every day, leaving around 100 children with just one, or even no parents. That can mean no incomes coming in to the house.

The normal trigger for taking out life insurance is when you settle down and buy your first home. A study by Aviva found that mortgage holders are much more likely to have a life policy, compared to unmarried people. Only a third of single people who have a mortgage also have life insurance, while two-thirds of parents with mortgages have it.

Life insurance doesn't just come in plain vanilla, there are various types to suit your circumstances.

The classic policy is perhaps the whole of life policy, which is an ongoing policy that pays out when you die, no matter when that is.

Then there is term life insurance, where you choose the amount you want to be insured for, and the period for which you want cover. It does exactly what it says on the tin: if you die within the term, the policy pays out; if you outlive the term, the policy doesn't pay out.

Then there's family income benefit insurance, a type of decreasing term policy. It does not pay out a single lump sum, it pays a monthly income to your family until the policy expires. That means that if you live until the final year of the term, your family get just a year of income. If you outlive the term of the policy, there's no monthly payout when you die.

The second main insurance type is critical illness insurance, covering you against a major health setback that may force you to give up work, and lose your income.

The Association of British Insurers demand that all CI policies cover the three core conditions of cancer, heart attack, and stroke. The vast majority also cover MS and major surgery as well. But as I say, these are just the core conditions.

Many common conditions also covered would be Alzheimer's, aorta graft surgery, benign brain tumour, blindness, coma, heart by-pass surgery, deafness, heart valve replacement or repair, kidney failure, loss of hand or foot, loss of speech, major organ transplant, motor neurone disease, paralysis of limbs, Parkinson's disease, third degree burns, traumatic brain injury, and total permanent disability. Some policies cover much more.

Makes for cheerful reading, doesn't it? Nonetheless, it pays to be covered – especially for men.

The giant insurer LV= confirm from their research that men are disproportionately more likely than women to claim on their CI policies, in particular as a result of heart disease. With heart attacks accounting for 20 per cent of male CI claims, compared with only 0.1 per cent of female claims, heart problems show the biggest disparity between men and women.

It is worth considering a CI policy, alongside life cover, to really copper fasten your family's financial security. Bear in mind that you are much more likely to have to give up work through critical illness, rather than through dying, during your working years. And critical illness is not an older person's problem. LV= say the average age for a critical illness claim is just 47.

Despite this, CI is much less understood than its more famous cousin, life cover.

Research by market research giant Mintel in its report “UK Critical Illness Cover 2022” showed that 27 per cent of consumers do not understand the difference between critical illness cover and income protection insurance. It also showed that 50 per cent of consumers with life insurance did not believe they would consider critical illness cover in the future.

CI cover is generally more expensive than life cover, and Mintel found that 20 per cent of consumers with household incomes greater than £50,000 per year have critical illness cover, compared to just 7 per cent of those with household incomes under £15,500.

Food for thought? Would it be a good idea to get your family covered against the loss of your income today? We can get you sorted.

:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com