Insurance

Life insurance

Pays a lump sum, or an income, to your family if you die during the policy term. Usually arranged to clear a mortgage and replace your earnings until children are financially independent. Written into trust, it normally pays out free of inheritance tax and without waiting for probate.

Critical illness cover

Pays a tax-free lump sum if you are diagnosed with one of the serious conditions named in the policy — most claims are cancer, heart attack or stroke. The money is yours to use for treatment, adaptations, or simply to stop working while you recover.

Income protection

Pays a monthly, tax-free income if illness or injury stops you working, for any medical reason, until you recover, retire or the term ends. It covers the widest range of situations of the three, and is the one most often missing from a plan.

Start with the numbers

Our free life insurance calculator adds up the debts, income and dependants your cover needs to support, so you walk into an adviser conversation already knowing the shape of the answer.

There is no universal figure, but a sound estimate comes from adding up what would still need paying if your income stopped:

• The outstanding balance and remaining term on your mortgage.
• Any other debts — loans, credit cards, car finance.
• The annual cost of running your household, multiplied by the years your dependants would need support.
• Childcare, education and care costs that a surviving partner could not absorb.
• Anything your employer already provides — death in service, sick pay duration, group income protection — which reduces what you need to buy.

That last point matters more than people expect. A generous employer scheme can cut the cover you need substantially, and an adviser will check it before recommending anything.

Buying on price alone. Two critical illness policies at the same premium can cover very different lists of conditions with very different severity definitions. The cheapest policy is not a saving if it declines the claim you actually make.

Not writing life cover into trust. A policy left outside trust can fall inside your estate for inheritance tax and has to wait for probate before it pays. Putting it in trust is usually free and takes one form.

Non-disclosure. Failing to declare a pre-existing condition is the most common reason claims are declined. Full disclosure may cost more, but it is the only way to know the policy will pay.

Never reviewing it. Cover bought against a mortgage taken out a decade ago rarely matches your commitments today. A review after a house move, a new job, a birth or a divorce is essential.

Protection is an underwritten product, which means the price and terms you are offered depend on your health and occupation — and differ significantly between insurers. An adviser can:

• Work out which of the three covers you actually need, and in what order, given your commitments and employer benefits.
• Compare policy wording and claims records across the market, not just premiums.
• Approach insurers that take a favourable view of your specific medical history or occupation.
• Set the policy up in trust, and keep the beneficiaries current as your circumstances change.