Thursday, March 26, 2015

Know about illness insurance



What is illness insurance?

Illness insurance protects your income if you are unable to work because of an accident, long-term ill health or disability.There are several different kinds of illness insurance. Some pay out a single lump sum, some will pay out a regular monthly income, while others will cover payments for specific things, such as your mortgage or credit card payments.
On this page we explain why you might want to think about taking out illness insurance. You can find  out about the  different types of illness insurance available, some of the benefits they provide and what you need to think about before taking out one of these types of policy

Why take out illness insurance

If you can’t work because of illness, accident or a disability, you may be able to get state benefits or sick pay from your employer if you’re unable to work. However, these may not cover all your needs.
You might find relying on state benefits or sick pay alone would leave you with a much lower standard of living than you are currently used to.  You might also find that you don’t have enough money to pay off any  loans you may have taken out or to keep up the re-payments on your mortgage. You  could find yourself falling into debt and  could lose your home, be taken to court by people you owe money to or even be made bankrupt.
Even if you can get state benefits or sick pay from your employer,  it might be worth thinking about taking out one or more of the types of illness insurance as well, to boost your income. However, most types of illness insurance do have drawbacks and limitations which you need to look out for.

State benefits

State benefits such as Statutory Sick Pay (SSP) and Employment and Support Allowance (ESA) pay a very low rate of income. There are other restrictions too. SSP only pays out for a limited period of time, while for ESA you may have to undergo regular medical assessments and it can be stopped if you don’t pass them.
It’s worth checking how much money you would get if you had to rely only on state benefits and comparing this with how much you think  you would need to live on.
To get an estimate of how much benefit you might get, use the Benefits Adviser on the Directgov website at: www.direct.gov.uk.

Employer’s sick pay and pension

Your employer may pay you Contractual Sick Pay. This is also called enhanced sick pay and it means that you would get all or part of your regular salary for a set period of time if you can’t work. Contractual Sick Pay can be paid at a lower rate than your normal pay.
Some firms will also pay your pension early if you have to retire early through ill-health, although the amount you get might be less than if you had worked to retirement.
If you’re not sure about what benefits you’re entitled to from your employer if you are unable to work through ill-health, you should ask them for details.

Self-employed people

Illness insurance can sometimes be a good option if you’re self-employed. This is because you can’t get pay from an employer and there are some state benefits you won’t be able to get either such as Statutory Sick Pay. However, there are some types of illness insurance you may not be able to get if you’re self-employed, so you will need to check policies very carefully before you take one out

Types of illness insurance

Here are some of the main types of illness insurance available. For more detailed information about  these types of insurance

Critical illness insurance

This is a kind of illness insurance that pays out a lump sum if you are diagnosed as having a specific illness such as cancer or heart attack. If you have a mortgage you may have been sold critical illness cover when you took out your loan. This is not the same as mortgage payment protection insurance.

Income protection insurance

This is also called permanent health insurance. This is another kind of illness insurance that would pay you an income for the rest of you life or until you reach retirement if you can’t work because of ill-health or disability. You usually have to wait a few weeks or months before payments start.

Payment Protection Insurance

This is a kind of insurance that you take out to cover mortgage, credit card, store card or personal loan payments if you can’t work because of ill health or are made unemployed. You may have to wait a few months before the payments start. They will only cover you for a limited period and usually stop after a certain amount of time.

Mortgage payment protection insurance

This is the same as payment protection insurance but will only cover your mortgage payments.
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