Life Coverage, Critical Illness, Income Protection - Are You Fully Covered?

When you graduated, there's a high probability you 'signed up' for income protection cover. Maybe it was at a graduation Ball, or perhaps it was following a talk you attended.

Even if you found out since that better coverage was available, the key is that you took action and purchased a very important protection plan. After all, imagine if you'd been off work for a number of years soon after starting work?

What would you have done if you hadn't had coverage?

From a financial planning perspective, it's sensible to have the right amount of coverage in place. However, like many other things in life, not all protection plans are the same as they all have their own small print and nuances.

Let's take a look at the main types of protection and what you need to look out for:

Income Protection

Without question, this is the most important coverage you can buy and everyone should have this in place. As your income is the 'fuel' for all your spending, having this coverage will increase the chances that you'll still have an income if you're off work due to illness, injury or accident.

If you're in the NHS, you qualify for 6 months full, 6 months half pay after 5 years service. Thereafter, you're on your own (although you may qualify for an ill-health NHS pension depending upon the severity of your condition).

If you're in practice it's likely that there's no coverage available, although General Practitioners may have provision for 12 months coverage in their Partnership Agreement.

If you're looking to purchase an income protection policy (or review your current cover) it's important to get your research right at the outset, as the price is based on:

- your age

- your health

- gender

- the general rates of coverage in the market

Try and buy the right plan, as you won't want to change it in future years (where possible). Otherwise, you'll be assessed on the above criteria all over again.

So, you want to look out for:

- if you're in practice, do you need day 1 cover?

- can you get guaranteed premiums?

- or reviewable premiums? (which means the premium may increase in the future, based on overall claims of either the provider or the income protection market)

- can you inflation proof your cover?

- will the coverage last until your retirement age? (some providers restrict it to, say, age 55)

- are you buying protection only or is there an investment element to the plan? (eg, Dentists' Provident Society has the latter)

- does it coverage your inability to perform your own occupation? (beware of plans that offer to pay a claim based on own occupation for a limited period, such as 24 months)

- what is the claims process? (it's recommended that you find out what it is)

- what is the claims history of the provider? (i.e. do they have a good reputation for paying claims)

There are over 20 providers of income protection, and the majority offer more than one type of plan. So you really need to do your homework to increase the chances that you'll make the right decision.

Let's briefly look at other forms of cover.

Life Assurance

Probably the most straightforward form of coverage available, and the easiest to claim on (after all, it's easy to prove if you're dead!).

However, whilst you'll need to take into account many of the criteria covered above, there are different forms of cover:

- term assurance, which is set up for a definitive period

- term assurance is available as level, increasing and decreasing

- you can also buy coverage that pays either a lump sum OR an income on claim (the latter is known as Family Income Benefit'

- most plans will also offer a payout for diagnosis of a terminal illness

Critical Illness

This is designed to pay a lump sum or annual income upon diagnosis of a specific list of illnesses. You'll need to look into the small print in depth with this cover, as it is arguably the most complicated. The main conditions that result in a claim are:

- heart attack

- cancer

- stroke

And don't forget...

Practice Overheads / Locum Cover

There are only a few providers that offer this cover, so make sure you find out who they are and what coverage they offer.

If you already have coverage in place, you may want to review your plan(s) as you may be able to obtain more competitive cover.

The Financial Tips Bottom Line

Ensuring you have the right personal protection is all about doing the right detective work:

work out how much coverage you need research all the types of coverage available make sure you purchase based on quality of cover, not necessarily price

ACTION POINT

Don't ignore this important area. Yes, investing your money is more 'sexy' than getting the right protection, but if you don't HAVE the right amount (and type) of cover, you may not have the money to invest!