How best to cover your bills should crisis strike
THE PANDEMIC has reminded us all how fragile life and health can be, and insurers report a surge in demand for financial protection such as life insurance and critical illness cover as a result.
Broker Lifesearch saw a jump of 250 per cent in life insurance enquiries during last year’s lockdown, while income protection queries jumped 400 per cent.
One in four say they are more likely to buy insurance as a result of the pandemic, to protect loved ones should death or illness strike, a study by financial services consultancy Hymans Robertson shows.
Head of products Karen Brolly said: “The turbulence of the past 18 months has brought health into sharper focus and led people to re-evaluate their priorities.”
So should you take cover?
TAKE COVER
There are three key types of protection.the first is life insurance. Most people buy affordable term assurance, which pays a tax-free lump sum if you die within a defined period, say, 15 or 25 years.
Last year, insurer Zurich paid more than £167.8million in life insurance claims, of which £18.1million was for Covid-related deaths.
Critical illness cover pays a tax-free lump sum if you contract a serious illness such as cancer, or have a heart attack or stroke.
Zurich said cancer claims accounted for more than four out of 10 payouts last year. Critical illness policies typically do not cover coronavirus, unless the virus triggers severe complications like a stroke or heart attack.
Income protection is the third option. This pays a monthly income if you cannot work due to health problems, which may include stress, and long Covid.
Do not confuse income protection with the inferior and notoriously mis-sold payment protection insurance (PPI).
Income protection has broader cover with fewer exclusions, and the replacement income will continue until you can return to work, or until retirement.
A combination of all three would be ideal, if you can afford it.
WISE MOVE
Parents and people with dependents are most likely to take out insurance, but sensible singles do it as well.
Öz Deniz Varol, 29, is single with no children but wants to feel safe: “My family live in Cyprus and I’m concerned what would happen if I became seriously ill and couldn’t work.” Öz has income protection with Aviva, which would pay £600 a month if she could not work, up to a maximum age of 68.This costs her £7.28 a month. She also has £25,000 of critical illness cover to age 76, costing her £16.37 a month.
Öz also took out £135,000 of life insurance to cover the mortgage on her Leeds home, where she lives with dog Pikachu.this will cost her another £7.53 a month.
Although many single people do not take out life cover, this would allow her to pass on the value of her home should the worst happen.
Because Öz is young and healthy, protection is relatively cheap, costing her just over £30 a month in total.
The later you take out a policy the more you will pay, particularly if you have suffered illnesses along the way.
THE COST
At 50, a non-smoker would typically pay from £15 a month for £100,000 of term life insurance to age 68. Premiums could double for those who smoked or drank heavily, or had health problems, as a claim is more likely. If combined with critical illness, the premium would increase to around £100 a month.
A stand-alone income protection policy would cost a healthy nonsmoker around £35 a month for £1,000 of monthly tax-free income to age 65, depending on their job. It would pay after three months of illness.
Insurers Aegon, Aviva, Canada Life, LV=, Royal London,vitality and Zurich all offer life cover. This is a complex area and people typically buy through an independent financial adviser, who can work out which is the right policy for you.
Ian Sawyer, commercial director at broker Assured Futures, said the pandemic has highlighted how vulnerable we all are: “Income protection for both illness and redundancy is a must because if we cannot earn we cannot pay the bills.”
Sawyer said an adviser can look at your circumstances and recommend the products most suitable, at the best possible price: “If you choose to buy direct from an insurer, watch out for cover exclusions or gimmicks.”
‘The turbulence of the past 18
months has brought health
into focus and led to a review
of priorities’
SEEK ADVICE
Alan Lakey, director at broker Highclere Financial, said your income may dry up if you fall ill but your financial commitments will continue.
When choosing critical illness cover, check what is offered and when. He said: “Although Covid is not listed some do pay after seven days on mechanical ventilation.”
Lakey added: “Life insurance is affordable for most people and should be regularly reviewed.”
Lifesearch senior adviser Ben Burgess said many are reluctant to have family conversations about death and illness but the pandemic has brought our own mortality into focus: “This is a complex area so seek independent financial advice first.”