Which protection cover should you choose?

The National Lottery recently launched ‘set for life’ which is a game that brings around an all too familiar dilemma, should you choose capital or income? Given the choice would you prefer a long-term income or a cash lump sum.

Should you take out critical illness cover or income protection?

Customers are faced with the same challenge in the protection market. Which product best suits the consumer – a lump sum payment from critical illness cover or long-term earnings cover from income protection? 

Richard Rushworth, Mortgage Broker in Brentwood & Hertford, Hertfordshire, said:

‘Now I believe there is a place for both types of protection in the current market, as income protection and critical illness cover address different risks in different ways. However, the problem arises when people have limited budgets so many cannot afford to take out both types of protection cover due to the premiums involved. Many clients ask us which protection cover is better, but as we discussed earlier in this article it is not as simple as that because both protection policies cover different risks and address different needs and every client has different requirements.’

Richard Rushworth, Mortgage Broker in Brentwood & Hertford, Hertfordshire, continued:

‘Statistically more consumers will have critical illness cover than an income protection policy. One of the reasons for this is that a critical illness plan can be linked to a life cover policy and works in the same way. The only difference is you need to be diagnosed with a critical illness that meets the provider’s definition. A typical provider could cover approximately 50 critical illnesses including cancer, strokes and heart attacks.  Also any lump sum will be paid to yourself. The difference with life cover is if you die the lump sum is payable to your family. Another reason for the greater number of critical illness policies is that a lot of financial advisers don’t mention income protection because of the jargon and greater complexity involved in explaining it. However, over the last couple of years the situation has improved as providers addressed the complexity issue and the lack of financial adviser knowledge of their income protection policy. Recently we have seen more providers offering these products and better marketing. For example LV introduced a risk reality calculator, which has led to improved financial adviser knowledge. Clients now understand income protection a lot better. Put simply Income protection works and provides an income when you cannot.’

Thomas Oliver mortgage brokers recommend both critical illness protection and income protection 

Richard Rushworth, Mortgage Broker, Tottenham, North London said: ‘Overall there is a place for both income protection and critical illness cover but your situation will dictate what tailor made solution is needed as each consumer will be different. An NHS worker or a Teacher may already have an income protection cover for 12 months through their employer so they may have a greater need for critical illness cover. They could also take a full income protection policy out as it would be a lot cheaper as there wouldn’t be a need to provide income until after 12 months due to their employer benefits. This allows them to have a hybrid solution or both covers to fit within their budget. Therefore, when a consumer is looking to obtain an income protection policy or a critical illness policy it is best to speak to a financial advisor or protection expert.’

In summary…

At Thomas Oliver we always give a solution specific to the client because the one size fits all approach is out of date and will not help you achieve your protection goals and objectives. If you are concerned about your lack of knowledge in relation to existing protection covers or you are looking to obtain protection cover to safeguard your family and standard of living please get in touch with the Thomas Oliver mortgage broking team on 01707 872000. We offer a free consultation and can discuss your protection options with you.