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It’s one of the strange facts of life that we all insure our cars and our homes and our possessions but often we don’t think to insure ourselves against the consequences of becoming seriously ill.
Probably the only time most people think about it is when they are getting a mortgage and suddenly ask themselves what would happen if they weren’t able to work. How would they pay the mortgage and what would they live on?
There are two ways of protecting yourself against ill health. First, there is critical illness insurance, which pays a lump sum if you are diagnosed with a serious illness or if you become totally and permanently disabled. This is often combined with life cover – it is possible to obtain policies which will produce a sum to repay the mortgage on death or earlier diagnosis of a critical illness.
In the last few years, critical illness cover has become more expensive and less comprehensive. As a result, more people are considering income protection (previously known as permanent health insurance) as an alternative. Unlike critical illness cover, this does not produce a lump sum. Instead, it pays a replacement income if you are unable to work for a lengthy period. At the outset, you select the age you want the policy to run to, the monthly amount you want it to pay and the ‘deferred’ period before the policy starts to pay out. Unlike mortgage protection payment policies, income protection policies will not stop paying after 12 or 24 months but will continue until the terminal age you have chosen.
In my view, income protection is vital for self-employed people. Employees need to find out what their entitlement to sick pay would be before applying for this cover. You can arrange the deferred period so that the policy starts to pay at the point when your sick pay runs out. However, there are some employees who would not benefit from these policies. Many public sector employers will offer early retirement on grounds of ill health if you are too ill to work while some private sector employers already provide income protection. So check your contract of employment first. There are also issues for gay men, so seek advice from an independent financial adviser (such as those at Isis) who are experienced in this area.
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