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Q &A: Insure yourself against injury
MD, Lincolnshire, asks
I am confused as to what would be the best kind of insurance plan to cover me in the event of not being able to work for a period of time. I've heard about income protection and critical illness plans but I am unclear as to what would best suit my needs.
I am a 34-year-old male who has life insurance but I feel like I need more cover, as I regularly play rugby and go climbing and would like to have some income to fall back on in case I get injured.
Francis Klonowski, principal of Klonowski & Co in Leeds, suggests
Income protection, once known as permanent health insurance, or PHI, and critical illness are often thought of as mutually exclusive. This is a mistaken view for two reasons: first because they serve different financial needs, and secondly because they cover different aspects of ill health.
Critical illness cover is designed to meet capital needs - such as repaying the mortgage, providing extra medical care, adapting the house and buying specialist equipment. It is not designed to replace lost income.
An income protection plan, by definition, would pay out a replacement income until you return to work or until retirement age if necessary. It begins after a deferred period - typically three or six months - depending on how long you are likely to be paid by an employer and/or how long you could manage on your own resources.
The two plans provide protection in different circumstances. One on diagnosis of a serious illness (usually life threatening) or total disability, the other for any illness or incapacity that keeps you off work for longer than the deferred period.
It is feasible to claim on one without being able to claim on the other. Let me illustrate with an example, for which we'll assume you have an income protection plan with a deferred period of six months, and a critical illness plan.
Imagine you have a heart attack. The critical illness cover pays out because it meets the policy definition. However, you manage to go back to work within six months albeit on medication, so your income protection plan does not pay out.
However, say you have a serious car accident, leaving you badly injured. You are not totally disabled, so the critical illness plan does not pay out. But six months after the accident you are still too incapacitated to return to work, so you claim on your income protection plan until you are able to do so.
Obviously you will need to check the policy conditions of both types before choosing, so you know under what circumstances they would cover you. Above all, though, check how they define disability. Ideally this should be inability to carry out your own occupation rather than just any occupation.
Finally, don't be misled into thinking that you just need to find the lowest premium - this is an all-too-common mistake. Protection insurance is far too important to be relegated to a matter of price comparison, when the main purpose is to ensure the right money is available at the time it is needed.
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