Three essential ways to protect your family

If there are people who rely on you financially, it's vital to get some kind of cover to protect them, should the worst happen to you...

Talking (or even writing) about life insurance might not be the most exciting topic in the world, but it is an important one. And if you have a family, it’s vital that you have some kind of cover in place should anything happen to you.

It’s not a thought many of us like to think about, but if you were forced to stop working, or even worse, you died, would your family be able to cope – would they manage to keep up with mortgage repayments, and all the bills, for example?

There are three key ways you can protect you and your family – income protection insurance, critical illness cover, and life insurance. And in this article, I’m going to run through exactly what each of these are.

Recent question on this topic

• bsajp3 asks:

  I don't have a partner or any dependents, but I do have a mortgage. Do I need life insurance? What would happen to my debt should the worst happen?

  • 
    SoftwareBear answered "If you don't want to leave your property to anybody ... then you don't really need life..."
  • 
    TheWelshman answered "Hi bsajp3 Thanks for your question! SoftwareBear has some good points here. If you are single..."
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Income protection insurance

Income protection insurance (or permanent health insurance) pays out if you become ill or suffer an accident and are therefore unable to work. It typically provides a tax-free monthly payment of between 50% and 60% of your salary.

This payment continues until you’re ready to return to work - or if you’re never well enough to start working again, it will pay out until you reach normal retirement age.

You can choose a waiting or ‘deferment period’ which determines when benefits will start. If you want your cover to start immediately, you will have to pay more. Typically, most policyholders defer their payout for 13 weeks. However, if you want to lower your premiums even further, you can defer your cover for 52 weeks or more, but you may need another source of income in the meantime.

Most policies will cover you if you are unable to do your own job. But you can keep premiums to a minimum by opting for a policy which will pay out if you can’t do any job. Just be aware that this means you won’t receive any payout unless you’re incapable of working in any capacity. So although it’s cheaper, this type of policy is far more limited in the cover it provides, and it may not give you the protection you need.

Alternatively, you could consider an income protection insurance policy which covers you if you’re unable to do any occupation which is suitable for you given your experience, training and qualifications. Premiums will still be cheaper, but you’ll have more cover.

It's also worth noting that income protection insurance will not cover you for loss of income in the event of redundancy.

Critical illness cover

Critical illness cover pays out a tax-free lump sum if you’re diagnosed with one of the conditions specifically covered by the policy. Typically, you’ll be covered for these core conditions:

• Certain types of cancer
• Coronary artery by-pass surgery
• Heart attack
• Kidney failure
• Major organ transplant
• Multiple sclerosis
• Stroke

If you’re considering taking out critical illness cover, you should check the terms and conditions of your policy carefully to see exactly what cover is included. The major drawback to this type of policy is that not all illnesses will be covered. For example, policies won’t cover conditions such as HIV/Aids and non-invasive skin cancers.

However, on the plus side, it can bring valuable peace of mind. What’s more, you don’t necessarily have to lose your income to make a successful claim. If you’re well enough to continue working, you may still receive a payout.

Critical illness cover premiums are calculated based on a number of factors including your gender, age, smoker status, medical history, height/weight and the amount/type of cover that you choose. If you’re a smoker, your premiums will be higher.

Be aware that you may need a medical before being accepted for cover. You also need to make sure you’re very honest when you are applying for your policy, and give your insurer accurate information.

If you need to make a claim, the insurer will investigate your medical history. And if it discovers you have withheld information, your claim may be turned down.

When choosing a policy, you should also be careful about not simply going for the cheapest policy. That’s because it may well cover you for a lot less than a more expensive one would. So again, make sure you check the terms and conditions carefully.

Life insurance

Life insurance is a very good idea if you have people who rely on you financially, because it pays cash on death. If you don’t take out a life insurance policy, and decide to rely on the State to take care of your family’s financial needs if something happened to you, you’re likely to be making a big mistake. Although there is some financial help available from the government, it really is limited.

Life insurance doesn’t have to cost a fortune either. In fact, life insurance is now the cheapest it’s been in eight years. You can easily, and quickly, compare a range of quotes using the lovemoney.com life insurance service.

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Making sure you buy enough cover is important. If you under-insure your life, you could leave your family with a large financial shortfall if they needed to claim. So it’s well worth checking out this cover calculator to ensure you are sufficiently covered.

If you’re buying as a couple, a joint policy usually works out to be cheaper than buying two single policies. However, it won’t give you as much cover as two single policies because it will only pay out once – when one person dies. Two single policies, on the other hand, will pay out twice, so you’re effectively getting double the protection.

If you’d like more advice on life insurance and whether you need it, read Seven steps to buying life insurance and Who needs life insurance?

Ultimately, deciding which type of cover you want is up to you. Personally, I would choose life insurance and income protection insurance over critical illness cover, but you may even want to choose all three. So make sure you do your own research and read the terms and conditions of each policy carefully.

However, what really is important is that you have some kind of cover in place. Leaving your family to deal with a financial nightmare should the worst happen to you, simply isn’t worth it.

Get rewarded with £100 for being boring

Here at lovemoney.com, we know that sometimes it takes a little incentive to sort boring financial stuff out - and let's face it, life insurance is pretty boring. But it's pretty important too, so, until the 7th April, if you take out a new life insurance policy with lovemoney.com, we’ll give you £100 as a reward.  

Plus, our quotes are also among the cheapest you'll find anywhere. But don't take our word for it: get a quote now to get your reward. 

Finally, we'd like to say thank you to lovemoney.com user Iniq for inspiring this article. 

More: Five dangerous myths about life insurance | Without this, you’ll be broke in 14 days