Income Protection falls into two distinct types: Accident, Sickness, and Unemployment Cover (ASU) and Permanent Health Insurance (PHI).
ASU is predominantly taken out in conjunction with mortgages and recommended to ensure mortgage payments may continue in the event of sickness or redundancy. This type of policy usually has a deferment period of 3 months and pays out for 12 months only, at which point it stops. This is stop-gap insurance.
PHI (Permanent Health Insurance) does what it says on the tin. It is permanent health insurance and once a policy has commenced the provider is unable to cancel it – this power lies in the hands of the policyholder. Permanent Health Insurance is more expensive than ASU for a very good reason – it does a completely different job. Benefits are paid out tax free and may be set either at a regular monthly amount or a percentage of salary up to a maximum of 60%.
Deferred periods (the gap between a claim being made and benefits commencing) can be anything from 4 weeks to 52 weeks, the longer the period the cheaper the premium. Unlike ASU, however, once a claim is admitted it is paid through to either the policy end date, retirement date, or the policyholder returning to work, whichever happens sooner. When considering this type of policy it is important to look for a provider that uses an own occupation definition. This means the provider would only expect you to be able to return to your own level of job and not something significantly different.
As peoples incomes are being stretched due to higher house prices and everyday living expenses, PHI cover is becoming more and more important.
For optimum cover ASU and PHI should be “dovetailed” and taken out together. This has the effect of bringing benefits on line quickly and making certain they remain in place until no longer require.
Medical Insurance is becoming more and more popular as people look for alternatives to the NHS. Recent years have seen new styles of plan come on to the market, most of which are designed to provide good levels of cover at reduced prices.
It is important to understand the difference between “underwritten” and “non-underwritten” plans. The former are medically underwritten at outset and policyholders are advised of any exclusions. Whilst it may take longer to put a policy “on risk” everyone understands what is and what is not covered, which makes life much easier in the unfortunate event of any claim.
As an independent financial adviser, Sandham, Davies & Jones Ltd is able to look across the entire market place of medical insurance providers and recommend the most suitable type of plan. Policies vary not only with regard to premium, but also with regard to flexibility, level of cover, and ancillary benefits.
Life Assurance & Critical Illness Insurance
This type of insurance is taken out be people wishing to ensure that their dependants will be provided for in the event of death. Benefits are paid out as a tax free lump sum.
- Mortgage Protection
- Term Assurance
- Renewable Term Assurance
- Renewable Convertible Term Assurance
- Family Income Benefit
Mortgage Protection is self-explanatory. It is the type of insurance taken out when someone arranges a repayment mortgage. In order to keep the cost low, the policy is designed to ensure that there will only be sufficient cover to clear the mortgage and no more.
Term Assurance is basic life cover. It has a sum assured, so the amount to be paid out is known in advance and the policy expires at the end date. If a policyholder survives to the end of the term then any premiums paid are forfeit and a new policy must be put in place.
Renewable and Renewable Convertible Term Assurance is simply basic Term Assurance with additions that may prove useful. The renewable option is the most popular since it means you have the guaranteed option of renewing the policy before its end regardless of medical condition at the time.
Family Income Benefit is a special type of term assurance. Instead of the benefits being paid out as one lump sum, they are paid out as an annual income for a set number of years. The amount that would be paid under a policy falls as the years go by Whole-of-Life assurance, like all of the other assurances above, may be arranged on a single life or joint life basis. It is paid right up until death or until the policyholder decides cover is no longer required. It is extremely useful when cover is required for a long but undetermined period. It is also useful for Inheritance Tax Planning when written on a second death basis.
Critical Illness Cover
Critical illness cover can either be transacted as a stand alone policy or probably more cheaply as an “add on” to any of the types of life assurance already mentioned.
Critical illness pays out a tax free lump sum not on death but on medical diagnosis of a “critical” condition. This is important because it places benefits in the hands of the policyholder when needed and not in his or her estate after death. Since more and more people now fully recover from critical illnesses such as heart attacks, this type of cover is becoming much more popular.
It is crucial to check whether policies provide “core only” cover or whether they provide something better. Such policies can either be geared towards price or to the level of cover required.
As an independent financial adviser, Sandham Davies & Jones Ltd is able to use any provider in the UK, providing definitions of conditions covered if required.