Financial advisors show lots of family images on their website
Yes, that's true. And financial advisors talk about protecting your loved ones. And what would happen to your family if you couldn't work for a few months or even a few years. If you were very sick and all your energies concentrated on getting well. And how this serious illness policy would make sure they were covered. And that you could rest easy because you know your family would be take care of.
They are taking your mind places that you don't want to go - cancer, heart attack, stroke. What happens if you can't work for a period? It feels like scare tactics. Or that they are tapping into a fear that you are not being a good provider
And you don't think you really need that protection.
People get that some insurance must be purchased. Car insurance, holiday insurance, house insurance etc .. But after I buy my new phone and the salesman tries to sell me phone insurance, my instant reaction is "no". There may be some merit in buying it and I certainly have dropped enough phones over the years. However, right at the moment I am buying my phone, it feels like the sales guy is trying to up-sell me and so I say no.
A serious illness policy seems to fall into this grey zone category for most people. It is not a protection you feel you have to have.
But, is that right ?
It might be. It makes sense to put down the pros and cons - as well as indicating costs. Let's be dispassionate about it and try to take a decision. Some people will want the extra protection but it is not for everyone.
What is a Serious Illness Policy, in brief ?
A serious illness policy pays out a tax-free lump sum upon diagnosis of a serious illness specified by the policy. Typically all cancers are covered, heart-attacks of a certain gravity, strokes, certain coronary artery surgery and Alzheimer's.
It may be part of a life policy. Or it may be a standalone serious illness policy.
What are we trying to cover here ?
The idea here is supporting a family during a difficult and costly time. A serious illness may also jeopardise future ability to work - depending on the nature of the illness. Death is generally covered by a life policy. A serious illness policy captures the other risk where there is a loss in future earnings - but due to a serious illness rather than a death.
And this is different from Permanent Health Insurance ?
Yes, Permanent Health Insurance (PHI) pays out an income - to bring you up to a maximum of 75% of your pre-illness earnings. This is better cover, of course. But PHI is far more expensive than Serious Illness Cover.
At this point, let me ask you to stop reading for a moment. Instead , can I ask that you check your contract with your employer. If you are very lucky you may already have PHI cover there. You will certainly not be the first client to come to us unaware of benefits that you already have with your employer! If you do have PHI protection, check the cover is sufficient. If it is, well then, you can stop reading right here. You do not need additional Serious Illness protection.
Still reading ?
Ok, ah well, it was worth a try !
How much Serious Illness protection would be sufficient ? This is the big question and it is something we can delve more into together. The answer will be different for each client. If we die, we will need to look at leaving a sum that will partially replace our salary and provide for our family until retirement. However, with serious illness the term of protection is unclear and depends also on the nature of the illness.
A rule of thumb I have used is 1 to 2 years and a figure of €50,000. There are a lot of variables at play here and the right figure will depend on your salary and outgoings. Also note that there is Serious Illness Benefit of €203 per week or about €890 per month. This support is available for up to two years.
We can run some numbers together taking everything into account.
And what's the cost ?
To give an idea, we obtained quotes from a leading insurer for serious illness protection for a tax-free lump sum of €50,000. The quote was for a 40 year old with 25 years term of protection bringing them to retirement. The quote was €35.96 per month.
The Serious Illness protection is often obtained as standalone protection together with life insurance. For example, €250,000 life insurance would cost the same person €31.03. However a policy with both €250,000 life insurance and €50,000 Serious Illness Protection costs €63.82.
So what will I do ?
The final decision is with you! You may feel the policy brings a peace of mind. Rest assured that we will get the best quote out there amongst our insurance business providers. AM Financial will also take you through full details of the policies available,