What are the different types of protection products?
The personal and family insurance market is saturated with different options which can create confusion and even stress among those seeking a new or updated policy. It is often the case that a client will contact our protection insurance advisers for information on one product without realising their needs are more aligned with a different insurance product. This is why it can be beneficial to get advice before applying.
The most common protection products that people consider are:
- Life insurance
- Life assurance (whole of life assurance)
- Family income benefit
- Income protection insurance
- Critical illness cover
- Private medical insurance
A protection insurance adviser can help you understand the differences between similar policies and explain the pros and cons of using each of them regarding your personal circumstances and preferences. Book a consultation with a Taylor James financial adviser today to get started.
Understanding personal insurance policies
Life insurance is an insurance policy that guarantees financial security for beneficiaries should the insured party or insured parties pass away within the fixed period of cover. Different types of life insurance policies pay out more or less as the policy nears its end date which is because the potential payout is aligned with decreasing mortgage payments or the increasing rate of inflation. Family income benefit is a type of fixed-term life insurance policy. This policy pays out ongoing instalments – or sometimes a lump sum – to family members when the insured party passes away or is diagnosed with a terminal illness within the term of the policy.
Life assurance, also called whole of life assurance, is not the same as life insurance. The person or people who are covered by the policy are covered for the entirety of their life, provided premium payments are maintained. The ongoing payments are higher because there is no end date to the policy and therefore the policy provider will have to pay out to beneficiaries at some point in the future.
Income protection insurance and critical illness cover are two other protection products that are often confused or misunderstood. Income protection insurance is an insurance policy that pays ongoing payments to the covered party when they have become ill or injured and cannot work. The ongoing payments will cover a percentage of their usual income to cover ongoing payments while out of work, such as mortgage repayments and other essential living expenses. On the other hand, critical illness cover is an insurance policy that pays out a lump sum payment when the insured party has suffered a serious illness or injury, such as but not limited to a heart attack, stroke, cancer diagnosis or head trauma.
Private medical insurance is another personal insurance option which is more widely understood and not confused as often as the aforementioned policies. It is an insurance policy that pays some of the medical bills should the insured party want to access private medical care and treatments - as opposed to using the NHS system. The benefit is that the individual will receive first-class healthcare without having to endure long waitlists. Additionally, the insured party could be seen straight away compared to waiting hours in an emergency department. Without this insurance policy, the cost of accessing private care and treatment can be eye-watering.
Should I choose life insurance or life assurance?
Life insurance and life assurance are two protection products designed to give individuals peace of mind that their loved ones will be financially secure should they (unexpectedly) pass away. Yet, there are key differences as noted above. Life insurance is only valid during a set term which is usually around 20 to 25 years. If the insured party does not pass away or suffer a terminal illness during the policy term, no payout will be made. Life assurance policies are not subject to a fixed term and last for the entirety of life, meaning an eventual payout is guaranteed.
To determine which option is right for you, it is best to speak with a qualified financial adviser who can assess both options against individual needs and preferences. For example, if the purpose of the cover is to help a surviving partner pay off a mortgage, a decreasing term life insurance policy may be best. On the other hand, if you want to provide financial cover for other reasons such as an ongoing health problem, a whole of life assurance policy may be preferable. Neither policy is better than the other and it all comes down to the individual and their family needs.
Should I choose income protection or critical illness cover?
Income protection insurance and critical illness cover are often confused. Some people’s situations and preferences are more aligned with one, whereas others should consider the other. Neither policy is better than the other as it will come down to the individual and their family’s requirements.
This is why it is best to seek advice from a qualified insurance adviser who can clearly explain the pros and cons of each option. We should also point out that it does not need to be one or the other. Some people choose to take out income protection and critical illness cover simultaneously or at different stages in life. It can even be possible to find a single policy that provides both types of ongoing protection.
Those with ongoing financial ties, such as a mortgage, will usually opt for income protection insurance, especially if their income is essential to maintain living standards and keep up repayments i.e. they are the main “breadwinner”. However, those without a family or fixed financial obligations may opt for critical illness cover to help them fund life experiences or specialist care should they be diagnosed with a serious or terminal illness. Of course, age and family / medical history may also play into the decision of which policy is best for them.
How much does income protection insurance payout?
The amount you will be paid from an activated income protection insurance policy can vary depending on your level of chosen cover which influences your premium payments. In most cases, people can expect to receive between 50% and 80% of their salary from ongoing payments. It’s essential that you choose a level of cover that will allow you and your family to maintain essential expenses while you are out of work which may require the guidance of a financial adviser who can account for factors often not considered such as CPI or inflation.
Is private medical insurance worth it?
The National Health System (NHS) does a fantastic job of providing excellent healthcare to everyone. However, NHS resources have never been so squeezed, especially off the back of the pandemic where waiting lists for treatments and surgery have significantly increased. This has caused more people than ever before to consider getting private medical insurance which will give them access to private doctors at a reduced cost (covered by the insurer) without having to join long waitlists.
For some people, this is worth the money but for healthy individuals with no serious family medical history, this may not be seen as worthwhile. Whether private medical insurance is a good investment will depend on personal factors and demographics. That being said, policies are cheaper when you take out this type of insurance with no serious medical issues. Premiums will be increased when you have ongoing medical problems already and this should be considered.
How much does private medical insurance cost?
MoneyHelper states that a family of two adults in their 40s with two children can expect to pay anywhere from £700 to £1,800 per year for private medical cover for the whole family. However, this may not be accurate because multiple factors need to be considered.
FAQs
Most individuals will start to consider insurance products after reaching major life milestones such as having their first child, gaining a significant promotion or buying a home. This includes life insurance, life assurance, income protection insurance, critical illness cover and private medical insurance.
However, there is no right time to take out a policy for everyone and it is never too late if you wish to protect yourself and loved ones with financial security should the unexpected occur. Taylor James welcomes people of all ages to get in touch and discuss their best options with an expert.
You are not obligated to get professional financial advice before choosing a personal insurance product but it can be beneficial. The financial adviser will explain the different options based on your exact circumstances, and by getting to know your personal preferences. Most protection advisers extend their services to broker the most suitable deal by searching the market on the client’s behalf.
They will even help the client make the application, which will require careful consideration of the level of cover desired by the client. This is one of the most important parts of the process as the adviser will need to ensure that the policy covers the client and their family’s financial obligations and expectations while also accommodating potential changes over time, such as inflation, etc.
Some people manage to secure appropriate policies with adequate levels of cover. However, genuine issues can arise if the policy does not provide the right level of cover and a claim needs to be made. This is also why it is paramount to review existing policies each year. Advisers can set reminders to ensure your cover is still providing the security and peace of mind required.
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FAQs
Most individuals will start to consider insurance products after reaching major life milestones such as having their first child, gaining a significant promotion or buying a home. This includes life insurance, life assurance, income protection insurance, critical illness cover and private medical insurance.
However, there is no right time to take out a policy for everyone and it is never too late if you wish to protect yourself and loved ones with financial security should the unexpected occur. Taylor James welcomes people of all ages to get in touch and discuss their best options with an expert.
You are not obligated to get professional financial advice before choosing a personal insurance product but it can be beneficial. The financial adviser will explain the different options based on your exact circumstances, and by getting to know your personal preferences. Most protection advisers extend their services to broker the most suitable deal by searching the market on the client’s behalf.
They will even help the client make the application, which will require careful consideration of the level of cover desired by the client. This is one of the most important parts of the process as the adviser will need to ensure that the policy covers the client and their family’s financial obligations and expectations while also accommodating potential changes over time, such as inflation, etc.
Some people manage to secure appropriate policies with adequate levels of cover. However, genuine issues can arise if the policy does not provide the right level of cover and a claim needs to be made. This is also why it is paramount to review existing policies each year. Advisers can set reminders to ensure your cover is still providing the security and peace of mind required.
