Life Protection

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This type of product provides a fixed or reducing amount of cover (called a sum assured) should you pass away within the term of the plan, and this sum assured will be paid out as a tax-free lump sum to your estate or the survivor if a joint life plan.

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These plans are often used to protect an interest only or repayment mortgage, ensuring the mortgage is fully repaid on death, or can be used to protect a family against the death of an income provider, so that the same standard of living can be maintained in such difficult circumstances.

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The monthly premiums are usually very reasonably priced and are based on the age, lifestyle, term, sum assured and current health situation of the applicants. Most plans have no investment element or surrender value.

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Critical or Serious Illness Protection

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This can be added to a life plan or undertaken on a stand-alone basis, and protects the policy holder against contracting a serious illness (often called a ‘critical illness’) that may cause permanent health issues, require a significant amount of time away from work or mean that the policy holder may not be able to return to work at all.

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Examples of the type of illness covered include cancers, heart disease, stroke, permanent disability and many others which are itemised on a pre-approved list issued by the policy provider. If a successful claim is made on diagnosis of an illness, the full sum assured is paid out to the policy holder to then be used to repay a mortgage or help replace lost income.

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The monthly premiums are based on sum assured, age, lifestyle, term and current health situation and tend to be a little more expensive than life-only protection, as there is a statistically higher chance of contracting a serious illness than passing away. Critical illness plans do not have any investment element or surrender value.

 

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Income Protection (Formerly PHI)

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Designed to replace lost earnings over the medium to long term, this type of product is usually set up to cover sickness or absence from work due to health reasons.

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Varying periods of time can be chosen from the start of your absence (called deferred periods) to allow for employer sickness plans or state benefits which you may be entitled to. Typically, these are 4, 13 or 26 weeks but can be longer depending on the product provider. The longer the deferred period the cheaper the premium usually is.

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After the deferred period has elapsed, the plan will pay a fixed monthly amount to replace lost salary or income if the policyholder is unable to return to work for a prolonged period due to sickness, accident or injury.

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The maximum term that comprehensive plans will pay out for is normally either return to work, retirement or end of the term of the plan, but again is dependent on product provider and type of plan. Some less expensive plans may only pay out for a shorter term of between twelve and twenty-four months.

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Premium levels are based on age, health, job role, lifestyle and the level of benefit selected. There are limitations of the level of cover that can be selected (usually a maximum of between 50% - 70% of your gross income) and this may affect the availability of state benefits.

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Often used in conjunction with life and critical illness plans, income protection plans can be important in ensuring that monthly mortgage and loan repayments can be maintained along with general household commitments during time off work.