Types of Insurance
Below is a brief outline of the main types of insurance arrangements available to people. It is not a full list of all insurance options available. It is always best for people to seek independent financial advice regarding the appropriateness of insurance arrangements for them and also to seek independent financial advice before making any decision to surrender or make amendments to insurance policies.
Life Insurance
Life Insurance is intended to payout in the event of an individual’s death. Life Insurance is taken out on a personal basis or by a business with relation to an employee, director, shareholder or Key Person. The cover is often arranged on a limited term basis or a whole of life basis.
Some Life Insurance policies may have attaching savings contracts to them. It is important to check whether life insurance policies have savings contracts attached to them before considering to surrender them or make changes to them. Life Insurance may also be contained within Endowment and Pension Arrangements.
Life Insurance can be paid out on a lump sum basis or on an income basis (Family Income Benefit).
Terminal Illness Cover
Terminal Illness Cover is often included with Life Insurance policies and Critical Illness policies. The cover is designed to pay out in the eventuality that an individual is diagnosed with a terminal illness. The criteria varies between insurers but often requires that an individual has a life expectancy of less than 12 months.
Critical Illness Cover
Critical Illness Insurance provides individuals with protection against the risk of suffering a defined critical illness. Like Life Insurance, Critical Illness Insurance can be arranged on a personal basis or by a business with relation to a Key Person, director, shareholder or employee. Protection against critical illnesses varies between insurance companies.
Critical illnesses are not necessarily terminal illnesses. For example designated critical illnesses often include heart attack and stroke.
Critical Illness cover can pay out on a lump sum basis or as a monthly income.
Income Protection
Income Protection is designed to protect an individual against the loss of income caused by sickness or incapacity. Income Protection may also be known as Permanent Health Insurance (PHI). The coverage offered by an Income Protection policy varies between insurance companies.
Policy terms are often set at the start of the policy but many policies allow amendments during the policy term for certain events.
Receipt of monies from an Income Protection policy may affect eligibility for certain means tested state benefits.
Accidental Death Insurance
Accidental Death Insurance is a policy that pays benefits to the beneficiaries if the cause of death is an accident. It is a restricted form of life insurance that would not pay out for deaths caused by circumstances such as illness. Policies will often exclude death while under the influence of any non-prescribed drugs or alcohol. Accidents as a result of involvement in hazardous sports may also be excluded. Coverage and exclusions vary between insurers.
Accident, Sickness & Unemployment (Redundancy) Insurance
Accident, Sickness & Unemployment Insurance provides limited protection against the risks of accident, sickness and unemployment. Protection provided by insurers is often time-limited with terms of 12 months and 24 months common. This means that insurers would stop paying out a benefit if a claim lasted longer than 12 months or 24 months. Accident, Sickness & Unemployment cover varies between insurers and the policy can be split between its separate components. People can take out Accident & Sickness cover separately from Unemployment cover. It is also important to note that the term Unemployment often refers to being made involuntarily redundant from work. This means that insurers may not pay out for people who become unemployed because of voluntary redundancy or being dismissed by an employer from work.
Mortgage Payment Protection Insurance
Mortgage Payment Protection Insurance is a form of Accident, Sickness & Unemployment (Redundancy) insurance that allows for the payment of mortgage payments by the insurer in the event that the borrower suffers an accident, illness or is made redundant. Protection by the insurers is often time-limited with terms of 12 months and 24 months common. This means that insurers would only pay the mortgage for 12 months or 24 months. After that they would stop making mortgage payments placing the burden back on the borrower even if they are still unable to work. The terms of Mortgage Payment Protection Insurance varies between insurers.
Payment Protection Insurance
Payment Protection Insurance is a type of insurance that allows for the payment of credit commitments by an insurer in the event that the borrower suffers an accident, illness or is made redundant. Like Mortgage Payment Protection Insurance protection by insurers is often time-limited with terms of 12 months and 24 months common. As with Mortgage Payment Protection Insurance this means that insurers would only pay credit commitments for 12 months or 24 months. After that the burden of paying credit commitments would return to the borrower even if they were still unable to work. Payment Protection Insurance terms vary between insurers.
Private Medical Insurance
Private Medical Insurance provides cover to reduce the risk of incurring medical expenses with non-NHS treatment. Policies vary between insurers with some providers offering more comprehensive cover than others. People with private medical insurance policies should check the policy terms for the level of cover offered regarding life limiting illnesses.
Travel Insurance
Travel Insurance is protection designed to cover elements such as medical expenses, lost items baggage, monies, holiday cancellation and other specified risks associated with traveling within or outside the UK. The level of protection varies between providers. Some providers will allow people to add or remove components of cover to allow people to build bespoke policies for themselves. Policies can be arranged on single trip or multi trip bases. People with life limiting illnesses should always check policy terms regarding exclusions to assess whether the policy is appropriate for themselves. Some insurers may exclude medical protection cover regarding life limiting illnesses for people with diagnosed life limiting illnesses. It is important to inform insurers of pre-existing medical conditions or cover could be invalidated.