During a recent financial review with a new client, something I carry out with all new clients, I asked the question as to whether he had any income protection in place. I was quite surprised and impressed when he told me he had. It's not usually the first thing young people think about and this guy in his late twenties had it sorted...or so I thought. He quickly followed this with "I think I have that with my mortgage protection". Ah ha. It wasn't the first time I had heard this and I'm sure it won't be the last. Indeed perhaps we as Financial Advisors and whoever sold him the initial policy are to blame. And so I embark on my task for today to educate the general population or at least anyone reading this on the difference between Income Protection and Serious illness.
Income protection is in general a standalone policy. It is not usually linked to your mortgage although it can be used as a payment protection policy in some cases. Serious illness cover or critical illness cover as it's also know can be either standalone or incorporated into a life policy or mortgage protection policy. This is where the confusion above often arises. This client in particular had taken out a mortgage protection policy some years ago through the bank where he got his mortgage and at the time he was also offered serious illness cover as an option. This type of policy is also a lot cheaper when you are younger and so he opted to go with this for a relatively low premium.
Serious illness cover will pay out a lump sum on diagnosis of one of a list of serious/ critical illnesses. Each company has their own list and they differ slightly so you should always check that you are getting the best cover. The main illnesses that they would all cover would be cancer, heart attack and stroke but most list around 40 or so different conditions. In the event of a claim the insurance company would pay out a lump sum payment. You could use this to clear some money off your mortgage, clear loans, fund necessary treatment you may require or for general living expenses if you are unable to work for a period of time. In general this cover is excellent if you need money quickly to clear a loan or your mortgage or if the illness is only short-term and you are able to return to work soon after but if you were unable to work ever again the lump sum is probably not going to last very long.
Income protection on the other hand provides you with a regular income in the event of you being out of work for a long period of time. It would cover any illness or injury which leaves you unable to work. Yes any illness or injury including those covered by serious illness cover. It will pay you right up to retirement or until you return to work. In some cases your employer may pay sick pay for a given period although there's no obligation in law. Seriously worth considering is Income Protection insurance. Cover kicks in once you're out of work for more than the specified period which can be 8 weeks, 13 weeks, 26 weeks or 52 weeks. The longer waiting periods are ideal for anyone who may be paid for 6-12 months by their employer. You could have the income protection coincide with this so that it would kick in then ensuring no gap in your income. The maximum amount you can claim is 75% of your regular salary - This can add up quite quickly and could potentially account for 2 to 3 million if you were never able to work again.
Income protection is in general a standalone policy. It is not usually linked to your mortgage although it can be used as a payment protection policy in some cases. Serious illness cover or critical illness cover as it's also know can be either standalone or incorporated into a life policy or mortgage protection policy. This is where the confusion above often arises. This client in particular had taken out a mortgage protection policy some years ago through the bank where he got his mortgage and at the time he was also offered serious illness cover as an option. This type of policy is also a lot cheaper when you are younger and so he opted to go with this for a relatively low premium.
Serious illness cover will pay out a lump sum on diagnosis of one of a list of serious/ critical illnesses. Each company has their own list and they differ slightly so you should always check that you are getting the best cover. The main illnesses that they would all cover would be cancer, heart attack and stroke but most list around 40 or so different conditions. In the event of a claim the insurance company would pay out a lump sum payment. You could use this to clear some money off your mortgage, clear loans, fund necessary treatment you may require or for general living expenses if you are unable to work for a period of time. In general this cover is excellent if you need money quickly to clear a loan or your mortgage or if the illness is only short-term and you are able to return to work soon after but if you were unable to work ever again the lump sum is probably not going to last very long.
Income protection on the other hand provides you with a regular income in the event of you being out of work for a long period of time. It would cover any illness or injury which leaves you unable to work. Yes any illness or injury including those covered by serious illness cover. It will pay you right up to retirement or until you return to work. In some cases your employer may pay sick pay for a given period although there's no obligation in law. Seriously worth considering is Income Protection insurance. Cover kicks in once you're out of work for more than the specified period which can be 8 weeks, 13 weeks, 26 weeks or 52 weeks. The longer waiting periods are ideal for anyone who may be paid for 6-12 months by their employer. You could have the income protection coincide with this so that it would kick in then ensuring no gap in your income. The maximum amount you can claim is 75% of your regular salary - This can add up quite quickly and could potentially account for 2 to 3 million if you were never able to work again.