In my line of work, I am often asked ‘which am I better off having, income protection or serious illness cover?’. This can be a difficult decision to make in terms of what is best for a person as although there are similarities between the two, they are uniquely different types of policy.

 

Income protection (also called Permanent Health Insurance or PHI) is a policy that will pay you an income in the event of you being unable to work due to illness or injury. Premiums (up to a certain limit) are tax deductible and one can usually cover up to 75% of their income. This is something that self-employed people should have in place in an ideal world as they are not entitled to the state illness benefit.

 

Serious Illness (also known as Specified Illness) Cover is usually a term assurance policy (akin to life cover) that will pay a tax-free lump sum should the policyholder be diagnosed with one of the illnesses specified in the plan. The most common illnesses (for example, the main cancers, stroke, multiple sclerosis, etc) are usually covered but it is important that one is aware of what exactly they are covered for under their specific plan as there may be subtle differences between life companies. This lump sum can be used for whatever reason the insured wants, whether it be to cover hospital bills or ensure their family is looked after in the event of being unable to work for a period of time.

 

In an ideal world, a person would be covered under both of the above policies which would of course provide peace of mind should illness or injury seriously impact their financial wellbeing. However, affordability needs to considered and at the end of the day there is no one size fits all solution. This is why speaking to a qualified financial advisor is very important.

 

Gerard Ward

15th August 2017