With the right cover, you can keep smiling even if that rainy day comes along

The pain of death, illness or injury can be eased with the right insurance, says Rob Griffin

Everyone wants the best for their loved ones – but thousands of families risk being plunged into poverty because they haven't taken out insurance to cover them financially should the main breadwinner die or fall ill.

There is no shortage of life insurance, income protection and critical illness policies, but very few people are buying them, says Swiss Re, which estimates the funding shortfall to be a staggering £2.3 trillion.

This is very short-sighted, warns Andrew Merricks, head of investments at Brighton-based financial adviser Skerritt Consultants, who insists that there are two main risks in life: either living too long and dying too soon.

"It's absolutely crucial to have some cover in place – particularly if you've got a young family," he says. "These days you need to build your own little welfare state because no one else is going to do it for you."

Now is also a good time to buy, suggests Matt Morris, policy adviser at broker LifeSearch, as fierce competition within the protection industry has led to some extremely competitive premiums.

"The cost of life cover has fallen – dropping about 40 per cent in five years. It has never been cheaper," Morris adds. "The critical illness industry paid out on 84 per cent of claims in 2006 – up from 81 per cent the previous year."

So, where do you start? Well, before going to see your financial adviser or searching for the best offers on the internet, it is important to know what you are talking about – and what type of policy might best suit your needs.



Life assurance

These policies provide financial security for your dependants should you die. If you don't have a spouse or children, therefore, then life assurance is probably is not worth considering.

There are two types of life cover – whole of life and term. Whereas whole of life pays out when you die, term policies operate on a fixed period basis – such as over a 25-year mortgage – and only pay out if you die within that period.



Critical illness cover

This will pay out a lump sum on the diagnosis of a specific critical illness, such as a stroke. There are no restrictions on how a payout can be used, so you can do anything from clearing the mortgage to paying for private healthcare with one. However, you must check the small print because some conditions – such as certain cancers – may not be covered. In addition, while some insurers exclude all pre-existing conditions, others make a decision based on factors such as the applicant's health.



Income protection insurance

These policies replace a person's income if they are unable to work for more than a specified period due to illness or accident. Usually, there is a waiting period before the payments kick in – the longer you agree to wait, the lower your premiums. However, once they start being paid they will continue until the claimant returns to work, dies or the contract expires – normally at retirement. Some policies come with extra benefits, such as retraining to help people get back to work.

IP pays out for conditions that are not covered under critical illness policies, such as stress.



Accident, sickness and unemployment insurance

Also known as mortgage payment protection and payment protection insurance, these products pay your mortgage repayments and loans if your income stops due to redundancy, accident or illness. Usually, they kick in one month after the money dries up and continues for a set period – often one or two years. The idea is to provide short-term assistance, but check for limitations and exclusions.

For example, you must have been continuously employed on a permanent contract by the same company for a year to qualify under the unemployment element.



Do you need it?

Before taking out any insurance, check what level of protection you already have. Have you any existing investment policies? Does your employer's pension fund afford you any cover?

Then you need to decide how much cover you require. The minimum required should be enough to pay off all outstanding debts, as well as providing a lump sum for each of your dependants. To give you an idea, work out how much you need to sustain your current standard of living over an average 12-month period and then multiply this by 25 years.



How to get the best deals

Many insurers will have a detailed guide to the illnesses and conditions covered, which will be written in clear, plain English. Ask to see this, as well as the document setting out the policy's key features, benefits and exclusions.

Most people buy critical illness cover when they take on a major financial commitment, such as a mortgage, but it's important not to buy the first policy offered. There's nothing to stop you shopping around; in fact it's advisable to do so.

It also pays to start young when premiums will be relatively cheap, rather than leaving it until later in life when the price of cover will start to rise substantially.

Another way to cut the cost of insurance is by quitting cigarettes – and what better time to choose than National No Smoking Day on Wednesday (12 March), adds Fiona Jackson, head of protection at Co-operative Insurance.

Ditching the weed can knock around a third off premiums for life, critical illness and income protection cover because medical evidence shows that smoking increases the risk of serious illnesses and exacerbates existing conditions.

"Giving up smoking can save people a significant amount of money as well as hopefully bringing a longer and better quality of life," she says.



Monitoring your decision

Don't think that just because you have bought a policy that you can then forget about it. It's advisable to revisit your original decision at regular periods to ensure that the cover bought is sufficient for your needs.

Have you changed jobs, for example, or do you intend to do so in the near future? Has there been a significant increase in your expenses that will need to be covered if you cannot work? Are you planning on having more children? All these questions need to be asked every year to keep yourself up to date.

Top tips

*Read the small print to ensure you know what the policy covers.

*Beware of accident and sickness policies that only pay for a limited period.

*Buy single rather than joint-life policies.

*Shop around and don't just talk to your bank or mortgage lender.

*Write any policy into trust.

Source: Lifesearch.co.uk

Stay healthy, pay less

Taxi driver Alan Johnson (left) has saved himself a fortune on insurance premiums since giving up smoking 18 months ago.

The 58-year-old, who lives in Manchester with his partner, Susan, had been puffing his way through 40 cigarettes a day for the past two decades.

Quitting the weed has improved not only his health but also his bank balance, because the amount he pays for life and critical illness cover has almost halved.

"A friend of mine who had quit a year ago told me about the savings – and I'm glad he did because I would not have thought about asking for a reduction," says the dad-of-four. "It was well worth the effort as it has saved me a lot of money."

Johnson, who is self-employed, saw the premium he was paying for his Co-operative Insurance mortgage protection life cover – a decreasing term assurance policy with a value of £46,000 – come down from £47.18 a month to £25.32.

And the monthly cost of critical illness cover – also taken out with the Co-operative – which pays out a lump sum of £44,000 should Johnson ever be diagnosed with such a condition – plummeted from £207 a month to £107.42.

That is a combined saving on premiums of £1,457.28 every year. "These policies seemed like a good idea to protect the family, especially as I had suffered a heart attack in the past," adds Johnson.

"You don't think about anything like that until it happens to you, but these policies cover me completely."

Start your day with The Independent, sign up for daily news emails
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
News
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
News
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
art
Sport
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
football
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
fashion
News
The image released by the Salvation Army, using 'The Dress'
news
Sport
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Customer Relations Officer

    £13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Jemma Gent: Project Coordinator

    £12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

    Recruitment Genius: Evening Administrator

    £8 per hour: Recruitment Genius: This Pension Specialist was established early...

    Day In a Page

    Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

    Homeless Veterans campaign

    Donations hit record-breaking £1m target after huge gift from Lloyds Bank
    Flight MH370 a year on: Lost without a trace – but the search goes on

    Lost without a trace

    But, a year on, the search continues for Flight MH370
    Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

    Germany's spy HQ springs a leak

    Thieves break into new €1.5bn complex... to steal taps
    International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

    Whirlwind wit of Simone de Beauvoir

    Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
    Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

    Confessions of a planespotter

    With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
    Russia's gulag museum 'makes no mention' of Stalin's atrocities

    Russia's gulag museum

    Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
    The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

    The big fresh food con

    Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
    Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

    Virginia Ironside was my landlady

    Tim Willis reveals what it's like to live with an agony aunt on call 24/7
    Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

    Paris Fashion Week 2015

    The wit and wisdom of Manish Arora's exercise in high camp
    8 best workout DVDs

    8 best workout DVDs

    If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
    Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

    Paul Scholes column

    I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
    Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

    From the Azteca to Vicarage Road with a million followers

    Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
    Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

    Khan ready to meet winner of Mayweather v Pacquiao

    The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable