Money matters SIMON PARFITT of Pyrmont Wealth Management answers your burning questions on finance.

“Do I need life insurance or critical illness insurance?”

Before considering your options, first answer this question: “If something happened to me or my spouse, would we be left in the financial position that we need to be in?” If you answered “no”, insurance could work well for you. Next, you need to consider the kind of insurance and its purpose.

Life Insurance There are different types of life insurance, all with the same outcome: on the death of the insured person, the policy pays out a lump sum of money. This is commonly used to clear mortgage debt, cover education costs or replace loss of income that the deceased would have provided. For people who live in, or have assets in, a country with inheritance tax (the UK, for instance), life insurance can also be used to cover this liability. It’s normal for Hong Kong employers to offer life insurance, but it may be as little as a year’s salary – insufficient for most people. Check coverage amounts with your HR department.

Critical Illness Insurance Medical insurance is used to cover private treatment costs relating to illnesses and medical conditions. In contrast, critical illness insurance pays out a lump sum of money to the insured individual in the event of a serious illness such as cancer, heart attack or stroke. The purpose is to cover individuals or families for loss of income that might be experienced. In some cases, this might be years, or even permanently – indeed, these situations can have a far more significant financial impact on a family. It’s uncommon for Hong Kong employers to provide critical illness insurance, though sometimes a small short-term disability coverage might be provided.

Seek professional advice from an independent advisor to help find a policy aligned with your specific needs and budget.