Additional Life Cover

Question: I’ve just had my third child and have been advised to put some insurance in place, but after making some enquiries, I’m pretty confused and have a limited budget. What’s the difference between Life, Serious Illness and Permanent Health insurance?

Answer: Yes, insurance is an important consideration, especially when you have people who will be financially dependent on you. Understanding the benefits of each of these types of insurance can be confusing at times. As a guide, Life Cover pays out a lump sum in the event of your death. There are generally two types; one that lasts for a specific number of years called Term Assurance and a Whole of Life alternative which can provide family protection, protection of your estate and business protection (until death). If you are self-employed, Life Cover can also be used to ensure the financial survival of your business in the event of the death or serious illness diagnosis of a director or key employee (Key Person Insurance). Mortgage Protection is also a form of Life Cover which decreases over time as the policy is designed simply to pay off the balance of your Mortgage should you pass away.

Serious Illness cover pays out a lump sum if you are diagnosed with a specified serious illness during a determined number of years. The list of defined illnesses can vary from company to company but generally most major illnesses like cancer, multiple sclerosis and stroke are covered. It can be taken out on its own or alongside Life Cover. It can also help subsidise a missing income if you or your spouse/partner are unable to work due to illness or disability.

Permanent Health insurance is more commonly called Income Protection and it effectively replaces some of your income (up to a max. 75%) if you are unable to work for an extended period of time due to an accident or illness. This type of policy provides you with a regular income, starting after a deferred period (from four to 52 weeks) with the potential to continue until you retire depending on your health. Affordability is obviously an important factor and your age, current health and the amount of money you want to be insured for all impact the cost.

Conclusion: For any change in lifestyle (eg. New house, starting a family) it is a good practise to review your financial needs and check if you are fully covered or to see where you may require additional protection. One call to your financial broker can help you understand the options available and to ensure you are spending your hard-earned money appropriately.