We know that personal insurance is never going to be the most interesting of subjects, that is until you are ill or die, and additional income or capital would have come in handy.
Insurance is a complex world, so we thought we’d put together a simple guide, looking at what type of personal insurance you need, depending on your personal circumstances.
Our aim, whether you are single, a couple, married or have children, is to get you thinking about the type of protection that’s right for you.
First things first, what do we mean by personal insurance?
In short, Life Cover pays out, normally in the form of a lump sum, although sometimes as income, if you die. Critical Illness Cover pays out a lump sum if you are diagnosed with a serious illness covered by your policy and Permanent Health Insurance pays an income should you be unable to work due to accident or illness.
That’s enough technical stuff, we want to keep this article as simple as possible, but you can find longer explanations for each type of cover by clicking the following links:
So what type of cover do you need?
If you are single
If you are single and don’t have children it’s unlikely that Life Cover is going to be your first priority, after all, as harsh as it sounds, who is going to be financial worse off if you die?
However, if you are single you probably have no one to rely on financially if you are ill. Your focus therefore, should be on making sure you can meet your financial commitments if you cannot work due to accident or illness.
If you have a mortgage you should consider Critical Illness Cover to repay your mortgage if you have a severe illness such as cancer, heart attack, multiple sclerosis, brain tumour etc.
Whilst Critical Illness Cover is excellent, if you need a lump sum in the event of serious illness, it doesn’t pay an income and also doesn’t generally cover certain common conditions such as bad backs and stress related illnesses. This is where Income Protection, paying an income in the event of you being unable to work for a prolonged period due to accident or illness, can be useful.
In summary, if you are single, we would suggest that Critical Illness and Income Protection are likely to be your main priorities with Life Cover being less important.
If you are a couple or married but have no children
This is more complex and much depends on how the household income is split.
If your household is very reliant on one partner’s income then it is on that person that your attention should initially be focused.
Start by considering Critical Illness Cover and Life Cover to repay you mortgage if the main earner becomes seriously ill or dies. Income Protection would also be useful if the main earner was unable to work for a prolonged period due to accident or illness.
You might also want to consider additional Life Cover, to make sure that the surviving partner has sufficient income or capital, should the main earner die.
If the household income is split more equally you need to consider whether one partner could manage financially if the other was ill or died.
If the illness or death of one partner would not cause financial hardship to the other, then it’s possible that protection is not needed. However, if your household could not cope on one income then you should consider which event, death or illness, would cause most financial hardship and then buy the appropriate insurance.
If you have children
This is where considering protection becomes even more important, as your children are clearly financial dependent upon you.
Firstly, if you have a mortgage, protecting it on death or in the event of serious illness is vital.
Next, consider the financial implications should one of you die. How would you meet day to day living expenses? How would your children be financially affected by the death of one of the parents?
Finally, think about how you would pay the bills if one of you were unable to work for a prolonged period due to accident or illness? If this would have a major effect on your finances then Income Protection should be considered.
Finally, don’t just think about protecting the only or main earner, the person who undertakes the majority of the childcare should also be covered, who would care for your children if the main carer was ill or unfortunately died?
We’d recommend you think about what protection you need based on your own individual circumstances. You should then look at any policies you already have in place and whether they meet your needs. Any gaps should then be plugged, as your budgets allows.
Out team of Independent Financial Advisers are experienced at reviewing the protection needs of our clients and their existing policies, if you would like advice do not hesitate to contact one of our team on 0115 933 8433, alternatively enquire online or email email@example.com