The cost of sickness

Sometimes it can be more important to insure the main breadwinner against long term sickness, than against their death as although in both cases the individual is unable to provide for their family, if he or she is still alive then extra money will be needed to cover their living costs.

Normally there are no problems with being off work for short periods, anything up to a month, but it is the long term sickness and serious illnesses that cause financial difficulties.

There are two types of insurance that could be considered, the first is Critical Illness Cover.

These policies are normally set up alongside mortgages and will pay out a tax free cash lump sum in the event of the policy holder suffering from a serious illness including heart attack, stroke, cancer and up to 25 other illnesses.

This policy then allows you to pay off your mortgage if you suffer one of the listed conditions.

The other type of cover is called Permanent Health Insurance, also known as Income Replacement Cover.

This policy will pay out a tax free monthly income, normally in the event of the individual being unable to carry out their own occupation due to accident or illness. The income will commence after a waiting period which can be 1, 3 or 6 months, the longer this period, the cheaper the premium. This period would normally tie in with the length of time the individual would receive sick pay from their employer or alternatively how long they could live off savings whilst not working.

In many ways Permanent Health Insurance Cover is preferable as it will provide financial assistance until it is possible to start drawing pensions, whereas Critical Illness Cover ceases to be of use once the lump sum has been spent.

Another advantage of a Permanent Health Insurance Policy is that it will start paying due to inability to work through illness regardless of the illness involved whereas if you suffer from an illness which is not on the list, then a Critical Illness Policy will not pay out.