Critical illness cover or income protection?

[jessicama]

Buying a house with my DP and we're weighing up insurance options in case of loss of income due to illness

We're leaning towards taking out both critical illness cover AND income protection. But it comes at a price!

Clearly we hope neither of us ever have to claim.. but definitely gives peace of mind to have it.

I know it's a very personal decision, but I just wondering what other people have opted for - and how you figured out the best compromise for your situation?

Critical illness can be quite limited in terms of cover. Income protection does tend to be much broader but check how long it will cover you for .

Also check if you don’t get through work policies already

It is VERY sensible to get btw!!!

Is there a good site for this sort of info? I think I looked at MSE a while back but still found it complicated.

It's a regulated sale. I've always fine for IP because it covers accidents and illnesses/disabilities that aren't covered by critical illness. CI is very restricted often excluding things when you need them. You may find that taking out both means only one will cover you if you need it so you'll have paid premia for an unusable product. Also watch the period at the start for how long you have to wait. IP also won't pay anything that's covered by benefits (iirc).

Take financial advice - IP is expensive so it's not a small decision.

Which? Is good on this. As is MSE. but because it's an advised sale you'll only get general guidance, not advice from open access sources

@FFSFFSFFS we both have fairly good sick pay cover from work (my DP's is 6 months full and 6 months half!) so the income protection would be set to kick in after that... and can set it to run for different lengths of time (obvs more expensive premium the more in runs for!)

@Toomuchis I didn't realise that about benefits... I thought it was pretty much anything medical that meant you were signed off. We got advice from a broker, so you'd hope she is only suggesting policies that are compatable?

There is some sense in taking out both if you can afford it. Critical illness covers a small number of illnesses, but these, like the name on the tin, are critical in nature. Should you be unfortunate enough to develop one of them you may find yourself unable to work for an extended period of time, or at all. When you have such an illness, there is peace of mind knowing your living costs will be accounted for in a lump sum payment. Income protection in contrast covers your income to varying degrees and for a limited period of time, so less peace of mind being time limited, but it covers a much wider range of circumstances, but at the same time does not cover all illnesses and eventualities. Do you also have life insurance, and if so have you checked what this will cover?

I’d double check if your work offers income protection as well as sick leave. Lots of organisations do and people don’t realise!

@LCDP Just realised the CI quote includes life insurance on the same terms... and my work seems to have a life assurance pay out?

@FFSFFSFFS Will double check tomorrow... just in case!

Definitely take out Critical Illness, I never dreamed I would need to claim on mine, but sadly I did, the policy paid out very quickly.

We didn't get CI cover in the end as it ramped up the monthly payments and also was quite limited in what it actually covered. I used MSE website a lot for research and Google in general when deciding and found it helpful. Check your employer's policy too as that helped us work out how much cover we needed after our work cover.

When I set up on my own, I got PHI.

Not critical illness, because I anticipated that if I was insured against 99 things, I'd go down with a 100th.

My policy covered being unfit to do my own job. Avoid one that says "unfit to do any job"

As it happened I had a severe accident.

One policy had a 3-month wait, and one 6 months (the longer the wait, the cheaper it is, because most people get better).

Bear in mind that if your current employment has good cover, you may lose or change employment, or your benefits package may change sometime in the next ten (or 20) years.

I was advised by a broker to take out income protection over critical illness cover as it would cover me in a greater number of circumstances. It’s also worth checking what kind of cover you receive though work.

And look at a stand-alone policy, not one tied to the mortgage you happen to have this year, for the house you happen to be living in at the moment.

IIRC salesman's commissions on these policies can be quite generous. There may also be direct sales from some L&P offices.

We had income protection last year that would have paid our mortgage. We had 3 months of savings so it was set to kick in at 3 months. I did lose my job and the claim was successful, but I got a new job before it paid out.

We used to have an in service death benefit so we didn't bother with that, as well as good sickness pay. We don't have anything at the moment (although we have fewer outgoings). What I am going to do is to weigh up all of the different scenarios, worl out how much we would get and how we would cope, and take it from there.

P.s.

When I was looking into it, I used a financial trade magazine published by FT group. They have now stopped publishing it but have a website called FTadviser.

It may still have tables of policies, prices, benefits, articles and ads for the trade.

Work in insurance. If you’ve got a good sickness pay with work, like your DP. IP would be pretty redundant as you’d likely have to wait 6 months before claiming due to his full pay. If he recovers in that time you’ve paid out monthly for nothing. Critical illness cover you, children, hospital stays etc immediately. No waiting as long as they get all medical records and you’ve been honest when taking the plan put. Rarer to have exclusions on critical illness, usually they just increase the premium unless there’s a history of things like cancer/MS which tend to be the highest claiming points. If always pick critical if you’re work gives sick pay

We had critical illness cover for over 20 years and to be honest, I did think that it was an expensive insurance for something we hopefully would never need. Both myself and my DH were young and healthy with two children. DH had a similar work package with 6 months full pay and 6 months half pay. His employment also had insurance so that after 12 months, the insurance would top up our income if he was unable to return to work at that point.

At the age of 46 my DH became seriously ill. The chemo alone took up most of the year and at the end of it, he was still not ready to resume work. In fact, his employer was actively trying to make him redundant due to his "job no longer existing".

We received a lump sum from the critical illness policy and it gave us breathing space financially at a time when we needed it.

Being made redundant in your late 40s with this recent medical history did not bode well for finding another job. No state pension until 67 either. Work pension could be accessed from 55.

In the end, my poor DH died in service before the redundancy was finalised. It was 5 months before probate was granted, a period without an income from his employer and his bank account was frozen (make sure you do have at least one joint account) and lots of bills including the funeral to pay for. The critical illness lump sump ensured I could still function financially, with two children to support until probate was granted and I began to receive a widow's pension and death in service lump sum from DH's employer.

Sorry I have waffled on - CI is expensive and hopefully you'll never need it, but when you do, it is a lifeline.

Thanks for all these thoughts!

@PigletJohn - interesting you say about not having it tied to the mortgage... we did look at an option that just gave a full pay out (rather than paid off whatever was left our the mortgage balance) but it was double the cost! Thinking I need to do some independent quotes to get a feel for variations in price

@Ivy48 I need to check the terms then, I thought IP just kicked in as soon as our work sick pay finished...

Depends on what deferment period you’ve set the policy at. If you’ve been sick for 12 weeks on full pay but then it stops, but your policy won’t pay out until week 16 then you’re stuck. Also no insurance is tied to a mortgage. They may sell it as mortgage insurance but you’ll get the pay out and it’s up to you to pay the mortgage off if needed. Also never buy decreasing, you pay the same payment every month for less and less cover. It’s is a cheaper option if you need it for now but level is always best.

@Spickle You haven't waffled. So sorry to hear about your DH and what you both went through.

Of course we all hope we'll never need it, but definitely will bring peace of mind to know we'd have some financial support should the worst happen

@Ivy48 That's kinda what I thought originally with the decreasing... but then when the level quote came in at double the cost, so I figured it was priced to reflect that.

Definitely need to do some more reading and get a few more quotes I think...

@jessicama

a mortgage protection life policy is calculated to pay off the reducing balance. e.g. in year 1, £250,000 and in year 25, £1,000

with no payout if you last the course

and you are more likely to peg out at 60 than at 40 (I should think)

so a lot cheaper than a whole of life policy, since you are bound to shuffle off eventually

I expect your policy was calculated in a similar way.

Spickle 💐

@PigletJohn But maybe we should play the long game and consider what happens post-mortgage pay off? Sorry if I'm being a bit dense - always find it difficult to get my head around numbers and finances!