Insurance is something we all need, but navigating through all the different insurance products can be challenging and confusing. On the surface, it can seem like many of them do the same thing, but there are a few key factors that will allow you to differentiate between each one.
Many people struggle to determine what types of insurance they need, so we have gathered a few common types of insurance and have explained each one separately to clear up any confusion, or to just broaden your knowledge of the insurance market.
Perhaps the most common type of insurance and the one most people are familiar with. Life insurance protects your loved ones in the event of your death by paying out a cash lump sum, so they can cope financially in your absence. Despite its significance, life insurance is not a legal necessity, unlike the likes of car insurance. So, naturally people forget about it and then if the worst happens, they find themselves in an incredibly difficult scenario – particularly if you have a marital partner or children. Life insurance cover is tailored to each individual, so there is not one single, universal policy. Your policy will be based around your exact requirements and therefore, you can sleep easy knowing the people closest to you will not be left to struggle in your absence.
Income protection insurance is designed to protect you in the event that a serious illness or injury is preventing you from earning an income. Once you make a claim, income protection pays out regular payments to your bank account and it’s these payments that ensure you can continue to receive a regular income until you are able to start working again or if the need arises, until you retire, die or the policy ends. Income protection is notably different from other forms of insurance as the payout will mimic the payment schedule of a salary (regular monthly payments), rather than receiving one lump sum at once. If your job entitles you to sick pay, then you may be overlooking income protection, but the payments for income protection begin after you have used up all of your sick pay (the longer you wait for the payments, the lower your monthly premiums will be) – so it is particularly useful if your illness or injury is going to affect you long term. If you’re pondering over income protection insurance, it’s worth taking a moment to consider your life without any income – because even if you are lucky enough to get sick pay, it won’t last forever and isn’t always an adequate amount that will allow you to live comfortably.
Critical illness cover and income protection can often be confused, but there are a few distinct differences that separate the two. Critical illness cover is an insurance product that pays out a tax-free lump sum if you fall critically ill or injured. What is classed as a critical illness makes this type of cover slightly more niche, but important nonetheless. Broadly speaking, the critical illnesses that are generally included on a policy are heart attacks, strokes and non-terminal cancer. As is the case with most insurance products, policy terms will differ from lender to lender, so what one lender may consider a critical illness, the other may not. It should be noted that critical illness cover is different to terminal illness cover, therefore if any illness is deemed terminal, you may not be covered.