income protection or critical illness

[Anonymous]

I’ve answered some questions that were PM’d to me but still sitting in the outbox, so if you asked a question about this topic, make sure you check your messages.

Cheers,

Dave.

[wilbur15]

Hi,

I am currently trying to decide which is the best product to go for..critical illness cover or income protection. I cannot afford both of them so I do have to decide between the two. We have a mortgage that would make your eyes waters, a house in neg.equity and my income is the main income in the house. I am married with a young son and my job is office based in the public sector. The financial guy from irish life is more on the side of critical illness but I am just so afraid if anything was to happen to me and I couldn’t work-the mortgage couldn’t be paid and I would be unlucky enough to get really sick but not sick enough with anything on the critical illness list! Can anyway advise or tell me what they are doing? Am very confused! 🙁

thanks

[Financial Companion]

Hi Wilbur, this is something I deal with almost every day. The main problem is affordability forcing someone to choose between one type of protection and the other. The fact that we cannot see the future or know what is going to happen makes it more difficult. Firstly, specified illness cover will pay out a lump sum on diagnosis of one of the listed illnesses. Although there are dozens of them plus partial payments for less serious ones, over 95% of claims are for the main 5, heart disease, cancer, stroke, MS and loss of independence. The chances in Ireland of getting one of the illnesses listed is 1 in 4 before you reach 65.

Income protection will pay a portion of your income (the maximum you can cover is 75% of your normal income less the current state social welfare entitlement) if an illness or injury prevents you from working and you suffer a loss of income. This only commences after a "deferred period" which is usually 13, 26 or 52 weeks (there are some that can pay out from an earlier stage but they get quite expensive!)

As you pointed out, an illness or injury could keep you off work for quite a while yet not be on the list of specified illnesses. The reverse is also true (as it was in my own case) where a cancerous tumour was removed and I was back in work less than 2 months later. Income protection would not have paid out a cent but thankfully, the specified illness cover did.
You may not have to settle for just one option. There may be a clever way to balance the choice. One important point is that you mention you are dealing with someone from a life company. This means they can only advise on their products and premiums, so if other companies have the same cover for cheaper, they cannot arrange this. I suggest you speak to an independent advisor so that you can look at all options. If the illness cover is done on a short term with a conversion option, it may leave enough room to also do some income protection. If you would like to PM me, I can arrange to discuss confidentially in more detail (and without any obligation) I hope that helps, Dave.

[Financial Companion]

I’ve replied to your PM Wilbur!

Incidentally, if anyone else is considering a similar dilemma, it’s important to consider just your own circumstances, not necessarily what a few others might have done. Factors to consider will include family medical history, type of work you do, how long you are paid for when out of work (if at all!), other cover you may have in place (including protection benefits that may be linked to a pension in work) and to what extent your day to day living would be impacted if a loss of income was suffered for a period of time, as well as who is financially dependent on you. These are just some of the factors to consider.

As ever, any questions, please feel free to ask.

Dave.

[Financial Companion]

I’ve just added an explanation of Income Protection in the "Protection Terms Update" thread to help people understand. Please let me know if anyone wants further explanations on any of the terms listed.

Dave.

[Financial Companion]

I had the very same question as this again yesterday. It really is important to consider your own circumstances as they can be so different from other people’s. Knowing how long and how much you are paid by your employer in the event of long term absence due to illness or injury is crucial. If anyone wants more info relevant to themselves, just email info@financialcompanion.ie or phone/text 087-6414570.

No cost and no obligation.

Dave.

[Author]

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