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There are many different types of Personal Insurance policies to consider to protect you should the worst happen. The trick is finding the right balance so you’ve got enough protection for all aspects of your life but aren’t over-insured and paying for benefits that might not necessarily be right for you.
The right personal protection products will protect not only you, but your finances and your family. Personal insurance covers a range of health and protection insurance products that provide a safety net against life’s uncertainties for you and your family.
Income Protection insures your income if you are unable to work due to illness or injury, paying monthly benefits to cover your expenses.
Private Health Insurance covers the cost of private medical care if you fall ill, giving you access to fast healthcare when you need it the most.
Personal Life Insurance pays out a lump sum upon your death to cover funeral costs, clear debts or financially support your loved ones after you’re gone.
Mortgage Insurance comprises Mortgage Life Insurance to protect against death and Mortgage Payment Protection to cover you in case you can’t work.
Critical Illness Insurance pays out a tax-free lump sum should you suffer from a critical illness. This can be used to cover medical expenses, replace lost income or make adaptations to your home following a disability.
Income Protection Insurance is designed to protect your wages if you are unable to work. If you have an accident, become injured or fall ill, Income Protection pays out a monthly benefit (up to 70% of your gross or pre-tax salary depending on your insurer) after a fixed waiting period comes to an end.
The best Income Protection pays out long-term, meaning you’ll be covered and able to receive benefits up until retirement if you’re so ill you can never work again.
Income Protection can be used however the policyholder sees fit. Most people use it for monthly essentials, from keeping up with the rent / mortgage to paying utility bills, buying groceries or keeping a car on the road.
State benefits offer the bare minimum financial support and many people likely would not be able to maintain their standard of living if forced to rely on them.
For instance, one of the main sickness benefits is Employment and Support Allowance, which starts at just £92.05 per week. Although other government benefits are available, these can depend on the nature of your illness and are subject to your circumstances.
Even if you have savings put aside, very few people have enough to last for any length of time without any other source of income.
With Income Protection, however, you can receive regular income from you policy to tide you over until you are well enough to return to work.
Needing to take more than 6 months off work is more common than people think. According to Drewberry’s 2018 Protection Survey, when asked to look back over their entire careers, 14.7% of the over-55s had needed to take at least 6 months off work at some point. That translates to roughly 1 in 6 people.
Meanwhile, 2 in 5 adults have less than £1,000 in cash savings so simply don’t have the means to support themselves for long on savings alone.
Life Insurance is one of the most important protections to purchase if you have loved ones that rely on your contribution to the household and who would face hardship if your income suddenly dropped out.
They might struggle to continue paying a mortgage without your income, for instance, or simply not have the financial means to maintain their current lifestyle if you were to pass away.
Personal Life Insurance pays out a lump sum to your loved ones if you die during the term of your policy.
There are two main types of Life Insurance:
Both last for a set term, but with Decreasing Life Cover the payout falls over time, typically in line with an outstanding mortgage. As the benefit reduces over the length of the policy, it’s the cheaper of the two options.
Level Life Insurance remains fixed throughout the policy. It’s more used to provide your family with financial stability, no matter when you die. It will leave behind exactly the same amount if you die in the first year of a 25-year policy as if you died in the 24th year.
Alternatively, if you don’t want the payout to be given to your loved ones in the form of a lump sum, you can choose Family Income Benefit instead, which pays out an agreed sum on a regular basis to offer ongoing support for the remainder of the policy term.
Family Income Benefit usually runs until your youngest child has finished their education and is ready to be financially independent.
If you have dependants who rely on your income, then it’s important that you provide them with some kind of financial support if you die.
With a Life Insurance payout, your loved ones could clear away the debts that they may struggle to pay off without the aid of your income.
Alternatively, they might use the payout to cover their daily expenses until they can secure a stable, regular income without you or they could put it towards funeral costs.
There are many ways in which a Life Insurance payout can be put to good use and many reasons why a Personal Life Insurance policy is a valuable protection product.
Most Life Insurance policies typically have a Terminal Illness benefit built in that allows you to claim during your lifetime if you are diagnosed with a terminal illness (where a doctor tells you that you’re not expected to survive for more than 12 months). This can help greatly towards costs associated with being terminally ill.
Writing your Life Insurance policy into trust is a way to ensure that your loved ones receive your policy’s payout without inheritance tax biting a chunk out of it. Writing your policy into trust also allows the benefit to bypass probate and therefore reduces the amount of time it takes for your payout to get to the people who need it.
With most Life Insurance policies, you will be given the opportunity to add Critical Illness Cover.
A joint policy has a few benefits and drawbacks compared to purchasing two separate policies that you’ll need to consider.
One of the main benefits of purchasing Life Insurance with Critical Illness Cover is the cost. As a joint policy, it costs less to have your Life Insurance and Critical Illness Insurance on the same policy compared to purchasing two independent policies.
However, there is a drawback that may negate the appeal of a cheaper policy.
Life Insurance with Critical Illness Cover will only usually pay out once. If you claim on the Critical Illness element of the policy for a condition that incurs a 100% policy payout, the insurance terminates. This includes the life cover.
If the critical illness you suffer is less severe and only warrants a percentage payout, the remainder will still be available to be paid out should death occur, but it will be less than the full amount you initially insured yourself for.
Whether you are the primary earner of your family or you take on the majority of the childcare, your loved ones could struggle to manage their finances without you. How would they cope in your absence?
While it’s obvious that losing a breadwinner would be problematic for a family, you also have to consider who would do the work of a stay-at-home parent if they were to pass away and the breadwinner continued to work.
Who would look after the children and the home? Would you suddenly incur much increased childcare costs that would need to be met in such a situation? As such, it’s often the case that it’s worth considering both parents’ contribution to a household, even where one doesn’t work or works reduced hours to take care of children.
Critical Illness Insurance pays out a tax-free lump sum should you suffer from a serious illness or injury during the policy’s term.
Every insurer that provides Critical Illness Cover will have their own list of critical conditions that are covered by the policy. This can range anywhere from fewer than 10 conditions to over 100 depending on the insurer.
Some Critical Illness policies also offer ‘partial payments’ when you contract a less serious condition, leaving the remainder of cover in place. However, if your condition doesn’t meet the severity criteria, such as early stage cancer or a ‘minor’ heart attack, then you may not receive a payout at all.
Critical Illness Cover can also be purchased combined with Life Insurance.
If you are diagnosed with a critical illness, the lump sum provided by Critical Illness Cover can be used to keep up with your expenses to protect yourself and your loved ones.
You can choose the size of your payout when you purchase Critical Illness Insurance. Often, cover is aligned with your mortgage to allow you to repay the debt if you were to fall critically ill.
Don’t forget Income Protection…
Critical Illness Cover has its place, but a lump sum payout may not be the best way to cover day-to-day expenses if your illness prevents you from working. Instead, Income Protection may be the better choice because you’ll receive monthly payments for as long as you need rather than being given a one-off lump sum that could have to stretch a very long way if you can never work again.
If you’re unsure about whether Critical Illness Cover or Income Protection is the best policy for you, it’s always best to speak to a financial adviser. The team at Drewberry is available on 01273646484.
Critical illnesses are life changing in many cases. If you are left paralysed by a stroke or are diagnosed with cancer, a lot of costs may be involved to organise care and treatment.
The payout from a Critical Illness Insurance policy can help you cover vital expenses during a difficult time.
IMPORTANT NOTICE 🧐
Not every incidence of cancer or heart attack will be covered by Critical Illness Insurance. Minor incidences may not trigger a payout – it all depends on your policy wording, so check carefully or consult an adviser.
There are two Personal Insurance products that make up Mortgage Protection Insurance:
Mortgage Life Insurance is a type of Life Insurance that will cover the cost of your mortgage debt.
With this personal insurance, your loved ones don’t have to worry about having to keep up mortgage payments if you were to pass away. With the lump sum they receive from the policy, they will be able to clear the mortgage debt.
You can add Critical Illness Cover to Mortgage Life Insurance so you’ll receive a payout should you be diagnosed with one of the critical illnesses at the severity set out in your policy documents.
Mortgage Payment Protection Insurance (MPPI) will protect your monthly mortgage payments in the short-term (for a maximum of 12, 18 or 24 months, depending on your policy).
If you aren’t earning, this insurance will cover the cost of your monthly mortgage payments by paying out on a monthly basis until you are well enough to return to work or the end of the policy term.
A mortgage is one of the most significant financial commitments that you will make in your lifetime and there is a lot at stake if you can’t meet your mortgage payments.
Missing mortgage payments could result in your debt’s interest increasing, costs, charges etc. being added on top of your debt, or you could find yourself losing your home altogether.
Many people in the UK are still some time away from finally paying off their mortgage. While protecting your mortgage is not an obligation, it is highly recommended that you take precautions to ensure that your home is not put in jeopardy if you ever faced misfortune.
Personal Health Insurance provides you with access to private healthcare facilities, physicians and treatments. It’s designed to cover the costs of private medical treatment for acute conditions.
Private Health Insurance can help you avoid NHS waiting lists as you’ll benefit from fast-track consultations.
Personal Health Insurance is designed to cover acute conditions that are treatable. It generally doesn’t cover chronic conditions, but can your diagnostic treatment leading up to the diagnosis of a chronic condition.
While the NHS is an indispensable service that does exceptional work, waiting lists are getting longer thanks to an ageing population and a funding squeeze. With Private Health Insurance, however, you can avoid having to wait weeks – or sometimes months – to receive treatment.
In other instances, having Health Insurance can make getting treatment a much more pleasant experience. You have more control over your appointments, the professionals who treat you, the hospitals you stay in and even when your loved ones can visit you.
You are also allowed more privacy and comfort, with a private room for any overnight hospital stays with most facilities providing private bathrooms for patients as well.
A long waiting list for treatment from the NHS could leave people with debilitating conditions needing to take a break from work, leaving them in financial hardship if they don’t have anything to cover their wages while they wait for an operation.
If you’re self-employed, it’s easy to see how any break from work could be disastrous, especially if you’re a sole trader. Some people can’t wait as long as 18 weeks or more to receive some kind of treatment.
Personal Accident Insurance is a protection product that many people have heard of but not many people fully understand what it is or what it does.
If you have an accident, Personal Accident Insurance will cover any injuries you receive as a result. What’s covered exactly depends on the policy.
Some will cover minor injuries that don’t necessarily prevent the insured from working, while some will need you to be signed off work with the injury to claim.
Some policies cover fractures, while others do not. Certain policies will only cover you if you’re permanently unable to work; meanwhile, others will pay out for loss of earnings due to temporary incapacity.
It may sound similar to Income Protection Insurance. However, rather than providing regular benefits to support you, Personal Accident Insurance offers a one-time, lump sum benefit.
IMPORTANT NOTICE 🧐
There is a lot of ambiguity about Personal Accident Insurance. You really need to get deep into the small print of the policy to figure out what you’ll be covered for and whether you’ll be able to make a claim when needed.
Personal Accident Insurance benefits are typically capped at an amount between £5,000 and £20,000. While this might seem like a reasonable payout in theory, this more than likely won’t last you very long if you had no other source of income and need to be off work for months or even years to recover.
There are a few key differences between Personal Accident Insurance and Income Protection that that make Personal Accident Insurance a less appealing policy if you are looking to protect your income.
Personal Accident Insurance | Income Protection |
|---|---|
Typically uses Suited / Any Occupation definition of incapacity | Own Occupation definition of incapacity is available |
Covers injuries resulting from accidents that prevent you from working | As well as covering injuries, Income Protection will also cover illnesses, including mental health conditions |
Pays out a lump sum once | Pays monthly benefits, with long-term cover allowing you to claim until you reach retirement if you can never work again |
When compared to Income Protection, Personal Accident Insurance is in many ways inferior. For instance, the single lump sum payment from Personal Accident Insurance – after which the policy terminates – is unlikely to be able to sustain you and your family over the long-term if this is required.
Products as important as personal insurance shouldn’t be filed away and forgotten about. They should be reviewed and updated when there are changes in your life to ensure your cover remains right for your current needs.
Certain life-altering events should be followed by a review of your personal insurance policy:
Some personal protection policies will include a guaranteed insurability option, which allow you to increase the amount of cover you have if you reach a major milestone in your life without submitting further medical evidence.
These typically include getting married, having children, moving house / increasing your mortgage and getting a pay rise / promotion.
Most personal insurance policies have specific options available to the self-employed, although some will likely be more of a priority than others.
For instance, while Health Insurance is a ‘nice to have’ insurance, the free healthcare from the NHS can mean it’s not as important as other forms of cover. As such, if you’re on a budget, this may not be at the top of your protection shopping list.
What’s generally seen as more important for the self-employed is Income Protection Insurance, a product that will replace your income if you can’t do your job for any medical reason.
With the self-employed not getting any sick pay in most cases, many people would struggle without their income, making Income Protection an important insurance to consider.
Most people are likely to take out personal insurance on an individual basis, paying for it from their own bank account.
When you pay for an insurance policy individually from your own bank account, you’re using usually paying from income, i.e. money that has already had tax deducted from it. In which case, the payout from most personal insurance policies is tax-free.
One exception to this rule would be if you were a company director who wanted your business to pay for Life Insurance, Income Protection or Health Insurance, in which case the tax situation becomes more complicated and it’s best to consult an adviser.
Yes, in many cases Personal Accident Insurance will cover broken bones. However, some policies will only cover permanent injuries, which would exclude broken bones, so it’s vital you check the policy wording carefully.
Moreover, if you break a bone and make a claim on the policy, many Personal Accident Insurance policies would cease having paid out its lump sum. This would then leave you unprotected should you later suffer a more serious accident.
Finding the right Personal Insurance product is only the first step to getting your protection put in place. Not all policies are made equal and different insurers will make different offers.
When it comes to protecting yourself and your finances, you deserve first-class service. Here’s why you should talk to us:
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