Critical Illness or Income Protection?

[Toupee]

Just looking for some advice on whether our life insurance cover seems sensible/adequate? Both in our mid 30s, 2 children, 1 mortgage

Separate polices for me and DP.

2 x Life Insurance (Decreasing mortgage cover)
2 x Critical illness cover of £40,000 (Roughly 1 years salary after tax)

Or I'm wondering whether it would be more sensible to do the following;

2 x Life Insurance (Decreasing mortgage cover)
2 x Income Protection (£2k per month, for 24 months)

It's a personal thing but all I can say is I went in for a routine operation (always discussed on here as life changing in a good way) 10 years ago. I never worked again (and never will be able to). My income protection payed out (kept a roof over our head till benefits were sorted). I did not have an illness on their critical illness list so couldn't claim on that. So really it's which is most important to you/necessary. As a single parent the income protection was always the most important to me and actually the one that saved our home.

Definitely income protection. The point of income protection is to insure against a specific financial risk - I.e. that you lose your income due to I'll health.
Critical illness is expensive cover that just gives a cash payment on diagnosis with a condition on a specific covered list, regardless of whether or not it has any impact on your ability to earn.

Depending on your budget, I’d do both. We have both income protection & critical illness cover. Covers all bases and means if I was to be unable to work for a period of time for an illness not on the critical list, we are still covered by income protection.

Thank you all for the thoughts, the IP seems to be the better option then I think.

Financially we can't afford both, DP gets reasonable sick pay so I will adjust the IP to start at the end of that period. I only get SSP so will have my policy start at the shortest period.

Monthly payments for IP vs CI are comparable, and actually over the course of 2 years (if needed) the IP would be a higher amount.

If either of us were to be diagnosed with a critical illness, I think that many of the ones included in a policy would unfortunately be terminal in which case the Mortgage Cover would eventually pay out anyway I guess.

Oh what a lovely conversation for a Tuesday afternoon 😅

OP, do either of you have company pension benefits that include early payment in case of serious ill health? It's just worth checking whether or not you have this.

Also, check the small print of the Income Protection policy carefully when comparing different providers, You say this will only pay out for 2 years. Does it allow you to renew your cover after a claim, in case you fell ill again, or would you need to start again with a new policy? It might not matter to you either way but worth being very clear on all the details before you commit so you know exactly what you're buying.

@Sunseed thank you, I'm not sure about the pension question I think we would need to check our policies.

With the IP, I am looking at a quote with Aviva. This is a fixed price for the duration of the policy and says that after a period of 6 months back in employment additional claims can be made and can be for the same illness/injury. Is this what you're referring to?

Yes - not all policies are the same and sometimes people might have an accident & sickness policy which is much cheaper than IP but not as comprehensive, and are then disappointed to find they don't have the cover they thought they had.

Yours sounds like it is properly Income Protection, though restricted in duration of pay-out to help keep the premium down.

Just posting with a different view. My DH was recently diagnosed with cancer (prognosis is good but there's a long road ahead). We had a critical illness policy for the full amount of our mortgage plus around £25k extra. So we find ourselves mortgage free with minimal other outgoings and the same income we had before, and some money set aside if we need it.

The peace of mind knowing our home is safe has been invaluable in allowing him to focus on his treatment (which is pretty brutal).

@berrypop thank you for your reply, and I'm sorry to hear about your DP. I have looked at critical illness cover to the cost of our mortgage but it wouldn't be affordable for us unfortunately.

I'm really pleased that things worked out financially for you, it's stories like these that make you realise how important it is to get protected.

You really need to speak to an advisor to understand the products better. If you make a quote on something like moneysupermarket, they'll call you and explain it to you. This is free, and is just about making sure you understand what you're potentially buying.

Income Protection and Terminal Illness have different purposes. The intention of Critical Illness cover is to cover the costs you incur with a serious illness, which may not be terminal or even stop you from working. Things like going to appointments on the other side of the country, a spouse having to take time off work to help during your treatment, adjustments you make to your home etc. It's worth noting that some Critical Illness policies also include a sum for dependent children - again to cover things like time off work to care for them. There's quite a big difference in which conditions are covered in different products so make sure you understand that. You pay more for more substantial cover, obviously.

Income Protection pays out if you can't work. Check what is required to pay out: it may be being unable to do your own job, or it may be being unable to do any job/do normal day-to-day things. Another thing to be aware of is that you can normally choose how long your deferred period is, ie how many weeks you need to be unable to work before it pays out. If you have enough personal savings to cover the first 3 months or 6 months of being unable to work (ie you're protecting yourself only for long term inability to work) then your premiums will be lower.

If you only have descending Life Cover, does that mean it's only to pay off the mortgage, and you each earn enough to be OK for living costs if the other dies? That can be the right solution if you have 2 equal earning partners with no dependant children, but it's still a bit strange to have 2 separate descending life policies.

It's common to have one descending joint life policy for you and your spouse jointly to cover the mortgage and then additionally each have a separate single life Life policy - usually either level or increasing - to cover living costs for any dependants.

The joint life policy only pays out once when the first one of you dies - which is appropriate for paying off a mortgage since you only need to pay it off once even if you both die (2x single life policies is more expensive since if you both die it will pay out for each of you) - and it's descending to reflect the reducing debt of a repayment mortgage.

The single life policies cover a percentage of the salary you each earn, to cover living costs for dependants. These can be for different amounts if you earn different amounts, but don't underestimate what it would cost a surviving spouse to pay for someone to provide the childcare etc which a SAHP/part-time worker contributes to the family. It's often appropriate to have separate policies for this since each of you contributes a certain amount, and if you both died then whoever looks after your dependants may need both lots of cover to take over their care.

Finally, check whether your Life Cover includes Critical illness. Some products cover both - which is obviously more expensive than Life Cover only, but you don't want to have double the cover you need without realising. Some Life policies may also offer 'Accelerated' cover, which means that in specific circumstances, eg if you have an illness which is expected to be terminal within a short time, then they'll pay out whilst you're still alive, so that you can use it during the expensive end-of-life period.

The main thing is, be really clear about what risk it is you want to cover, and then make sure you've got the right cover for it. An advisor can talk it through with you and help you make sure of that.

Just bringing back this thread because I am looking for life insurance but particularly to support my rock climbing hobby. I came across Sports FS, has anyone used them before?
https://sports-fs.co.uk/

@cuddlekitten I've not used them, but as a financial adviser myself they look pretty genuine to me. Hazardous pursuits is a specialist area for insurance so it's worth using a broker who knows what they're doing and it looks like they would.

Be careful with Aviva. My income protection was "index linked"- increasing all the time to match inflation. The premium increased from an initial £60 a month to about £130 over the years. I cancelled and got a much better product elsewhere via Compare the market.

Whilst you should certainly keep reviewing your cover to malke sure it's still appropriate for you and good value, it shouldn't be the fact that it was 'index linked' that caused the problem.

That just means that your cover (how much you get if you claim) and your premiums (how much you pay each month) both increase: either by a set percentage, or in line with eg RPI. You can imagine that with a policy that lasts 20-30 years, you could otherwise end up under-insured just due to inflation. That's why you can choose to have your cover index-linked so that the amount of insurance you have increases to allow for inflation.

That doesn't change how good value the insurance is, since you get eg 5% more cover in return for 5% higher premiums.

It isn't always appropriate, of course. Life cover intended to pay off a mortgage is usually decreasing to reflect you paying it off over time. But life cover intended to support dependents is often increasing /index-linked to reflect costs increasing with inflation.

It's great you found better cover - but do check the conditions etc and make sure you're comparing like with like. It's unusual for any kind of life insurance to be cheaper when you start it at an older age. Your risk of ill-health increases as you age, and insurance pricing allows for your risk over your whole term, since they're committing to continue to cover you for the same premiums (optionally with indexation to protect against inflation) for eg 20 years.

In particular, make sure that the replacement insurance you're considering is for the cover amount with the indexation applied, not your original amount of cover!

Personally, I would take out CI cover for both yourself and DH, my policy paid out very quickly when I was unexpectedly dx with Multiple Sclerosis.