Protecting yourself financially against illness

Protecting yourself financially against illness

If you fell ill and were unable to work, how would you manage financially? Insurance can help. In this guide we look at what types of income protection insurance and medical insurance are available.

Written by Abigail Montrose on 17 September 2013

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Why you might want protection

Coping with the unexpected is part of life and insurance can help you do this. You might want to think about how you would manage day to day if you fell ill and couldn't work for any length of time.

You might be able to manage in the short term if you are a member of an employee sick pay scheme or on a combination of state benefits and savings (if you have savings). But if you suffer a protracted illness or are diagnosed with a life-threatening disease it could be a different matter.

Even the most generous employer sick schemes don't last forever. For more on what help you can expect from your employer if you fall ill see our guide. And if you're self-employed you won't have an employer sick pay scheme to fall back on.

You may be entitled to state benefits when you are sick but these are modest and few of us have enough savings to last indefinitely.

What cover you might need

There are various types of insurance which can help replace your income or meet a specific cost if you're unable to work due to illness. If you want to protect your income so that you can meet everyday expenses as well as your usual bills and financial commitments, income protection insurance offers the most comprehensive cover.

To help work out how much replacement income you might need you could draw up a budget of how your household's income and spending might change if you fell ill. For more on how your budget might be affected by illness see our guide.

A cheaper but more limited option to income protection is payment protection insurance, also known as accident, sickness and unemployment insurance (ASU). The pay-out from this insurance can be used how you choose but people usually take it out to cover a specific expense such as loan or mortgage repayments.

If you are concerned about how you would manage financially if you contracted a life-threatening or serious illness, critical illness insurance might be appropriate. And if you would like the option to receive private medical care or want help with health costs, then private medical insurance or a healthcare plan might be worth considering.

Income protection insurance

Income protection insurance pays out a regular income if you're unable to work due to illness. Cover can be for a specified amount of time or until you are able to return to work, retire or die, whichever comes first. For more on this see our income protection insurance guide.

Other insurance

Other types of insurance which can be useful if you fall ill and are unable to work are listed below.

  • Payment protection insurance (PPI). This pays out a set amount for a specified period of time which is typically between one and two years. The pay-out is usually to cover a specific expense such as a loan or mortgage if you are unable to work due to illness, an accident or redundancy.
  • Critical illness insurance. This insurance pays out a lump sum if you are diagnosed with a specified life-threatening disease.
  • Private medical insurance (PMI). This covers the cost of private hospital treatment.
  • Health cash plans. In exchange for a monthly premium these schemes pay out a cash sum if you have to go into hospital or have specific treatment such as dental or chiropody work. The pay-outs are relatively small and not enough to pay for private medical treatment. However, these schemes can be useful to cover things like dental treatment or opticians costs.

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