Cover Yourself by Sorting Out Best Policies: Critical Illness and Mortgage Protection
Sunday Mercury, 18 July 1999
If your job is so stressful that you are worried about staying the course, you can be reassured that insurance is available which covers you should you become critically ill - or your employer go belly up. But you can get a stress-related illness wading through the various policies and policy types on offer. And wade through them you must if you are to obtain appropriate and affordable cover.
The Association of British Insurers (ABI) recently issued a detailed Best Practice statement concerning Critical Illness cover. Critical Illness insurance is different from Mortgage Payment Protection Insurance, for which new standards came into effect earlier this month. These standards were the result of a collaboration between the ABI and the Council of Mortgage Lenders.
And these revisions have come about in part because many people paid premiums in good faith to cover themselves in case of illness or redundancy only to discover that their particular infliction was not covered. Smallprintitis.
It is vital to understand this area of insurance not least because serious illness usually also hurts job and income prospects, and this is a double whammy that renders us doubly vulnerable. It is precisely the circumstances in which, when we most need help, insurance provides a vital cushion. Get it right and you or your family receive at least some comfort. Get it wrong and you compound your difficulties, especially if it turns out that you have been paying premiums fruitlessly.
Let’s start with terminology: according to the ABI, Income Protection Insurance provides “a tax-free monthly income while you are unable to work due to sickness, accident or injury until you are able to re-join the workforce and continue until your normal retirement date.”
Do not confuse Income Protection Insurance, the ABI cautions, with other kinds of insurance that pertain to health, namely, Private Medical Insurance; Critical Illness Insurance; and Accident, Sickness and Unemployment (ASU) Insurance, such as Mortgage Payment Protection Insurance.
Where in this scheme do policies with names like Income Replacement Insurance or Disability Income Insurance fit in? The ABI notes that different companies have different names for policies which are under the Income Protection umbrella. The first stage in coming to grips with income and health-related insurance is understanding the terminology.
The second stage is understanding the policies. In its brochure “Buying mortgage protection payment protection insurance? What you need to know,” the ABI advises you not to sign on the dotted line until you know the answers to these questions:
- Who is the insurer?
- If you make a claim, will you have to pay anything?
- Does the policy contain exclusions or restrictions which may apply to you or your family?
- Will you have to pay more than the premium, and if so, why and how much?
- What are the consequences if the information you provide to the insurer turns out to be inaccurate?
- How and to whom do you complain is problems arise?
You can settle for vague answers, or you can help your cause by pressing for actual amounts and highly specific replies. Thus armed, you may decide that the total you pay in premiums is not worth the total payout to which you might be entitled. This kind of question can be critical with policies where you pay monthly for between 15 and 25 years for a policy that may pay out for only a year or two.
An important cutoff date is 1 October 1995. If you took out your mortgage before that date, you may qualify for partial mortgage relief from the State within two months of losing your job, whereas if it was after that date, the wait is nine months.
You can worry yourself to death or to unemployment and have a policy that excludes such conditions. A new discounted Birmingham Midshires Home Protector policy covers monthly payments between £100 to £1,500. For £300 worth of ASU cover, the cost is £12.93. You need to have been employed for 6 rather than 12 months, and stress-related disorders, backache and pregnancy complications are no longer excluded. “Homeowners can choose either accident plus sickness, or unemployment only, or both,” says a BM spokesperson. Benefit and excess periods are also flexible.
The ABI position on Critical Illness notes that customers should receive “key features” details “as soon as possible during the sales process.” These details should show not only what is and is not covered, and also under what circumstances. The policy will include a list of conditions covered; this list names names, such as “Alzheimer’s Disease before age 60”, Heart Attack, and Loss of Speech. If it is not on the list, it is not included. The right insurance for you considers all of the particulars of your life, including life insurance policies you may hold. For some people, the right insurance is no insurance. Other options are preferable.
Midshires Home Protector; 0800 223422; for the ABI brochure, send an A4 SAE to Kevin Wright, Public Affairs, ABI, 51 Gresham Street, London EC2V 7HQ. The brochures and much else are available on ABI’s website: http://www.abi.org.uk
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