Life after debt: a guide to health, life and payment protection insurance

Today’s guest post is written by Matt Sanders from GoCompare – thanks Matt! 

 

These days it’s possible to insure pretty much anything – from pampered pets to a premiership football player’s goal-scoring foot.

 

Whatever the insurance policy, the reason behind it usually boils down to one thing – providing peace of mind. And none do this more than policies covering health, life and payment protection.

 

Health insurance

A health insurance policy covers the cost of treatment for curable, short-term illnesses, sparing you the worry of NHS red tape and waiting lists (which could be as long as 18 weeks), and can let you choose where and by whom you are treated. You’ll also get a private room for hospital stays, and potentially access to treatments not offered by the NHS.

 

Emergency situations requiring A&E care won’t be covered, as health insurance is designed to work alongside the NHS, not to replace it. Nor will serious or terminal illnesses – for those you could consider taking out additional critical illness cover.

 

Health insurance can protect either you as an individual, your family, or you and your partner. For a monthly premium, the policy will pay for the cost of treatment if any of you fall ill, usually up to a pre-determined limit.

 

It’s also possible to take out a ‘health cash plan’, which pays out cash sums for things like eye tests, dental treatment and physio.

 

Whichever health insurance policy you take out, check what’s covered and what isn’t. The more comprehensive your cover, the more expensive it will be. A basic policy should include in-patient treatment, but as only a fifth of GP referrals result in hospital admissions, you may want to consider cover for out-patient treatment, too.

 

Things like dental care, physio, cancer care, home nursing and psychiatric treatment will all increase the cost of your policy, and you’ll need to declare any pre-existing medical problems (which won’t be covered). The good news is, you can mitigate the cost of your policy by taking proactive steps to leading a healthy lifestyle – regular exercise and not smoking are a good start.

 

Life insurance

It’s hard to put a price on the peace of mind of knowing your family will be looked after in the event of your death – but a life insurance policy will do just that. Putting it bluntly, in return for a monthly premium, the policy will pay out if you die.

 

Broadly speaking, there are two types of life cover:

• With term life insurance you’re covered for a fixed period, and the monthly premium you pay usually decreases over time – but so too does the sum paid out. The idea is that the payout shrinks in line with your largest financial burden – usually a repayment mortgage. Term life is a good one to consider if you don’t have dependants, but want to ensure a partner is covered for mortgage payments if you pass away.

• If you have children, a whole of life policy might make more sense. It will be more expensive than term life cover, and you’ll still be paying premiums late into life, but the insurer will pay out the agreed sum regardless of when you die.

Ensure you read the small print and policy exclusions, and give some careful thought to how much cover you need. Take into account any outstanding debts such as your mortgage, and tot up how much income you contribute to family finances. Consider using an online life insurance calculator to help crunch the numbers, and follow these tips to help keep the cost down.

 

A word of warning – if you are parents and only one of you has an income; don’t fall into the trap of insuring only the breadwinner. It’s easy to underestimate the value of a stay-at-home parent – in the unfortunate event of their death the surviving partner can find themselves facing costly child and home care bills.

 

And, as with health insurance, consider adding critical illness cover, too. If you’re diagnosed with a terminal illness you might be too poorly to work – but your life insurance policy may not pay out until you pass away.

 

Payment protection insurance

Miss-selling scams and the constant calls from compensation firms mean PPI has gained a bad reputation – but a good policy can mitigate your exposure to financial commitments in the face of life’s uncertainties.

 

A payment protection insurance policy is a type of income protection insurance. It covers your repayments on things like cars, loans and credit cards if you suddenly find yourself unable to work. Depending on the type of policy you purchase, you’ll be covered in the event of either accident and sickness, or unemployment, or accident, sickness and unemployment.

 

You can choose the length of the term but note most insurers will only cover you until retirement age. Usually, a single policy will cover a specific debt such as a particular credit card – you won’t be able to claim if you spend on another card.

 

Note that you probably won’t be able claim for the first 90 days after you stop working, and pre-existing conditions and certain illnesses won’t be covered. Once more – check the small print!

 

About the author: Matt Sanders is Gocompare.com’s spokesperson on life, health and income protection insurance. He has commented extensively on a whole range of money matters and closely follows the latest changes and trends in the sector.