Critical Illness Protection for Contractors
Why do you need protection?
As a contractor or freelancer you work in a challenging commercial environment and as such are statistically at a very high risk from so called ‘Critical illnesses’ such as heart attack, stroke and cancer.
Arguably for those contractors without dependents, it could be argued that there is little need for traditional life insurance. As long as sufficient cover is in place to repay any outstanding mortgage or other debt in the event of your death so that no burden is left on any remaining family members, then contractors should maybe think more about ‘looking after number one’.
Of far more concern would be the effects of a range of serious conditions such as cancer, heart attack and stroke. These illnesses would often have been killers even 15 years ago but are now treatable thanks to modern medical advances. However these same illnesses (that can incidentally often be traced back to the pressures of contracting) can often leave you in a reduced state of health.
What is the solution?
You can protect yourself from the potentially disastrous financial consequences of such conditions so that a lump sum is paid on diagnosis of the illness.
For a relatively small regular monthly premium a contractor can arrange for a lump sum to be provided simply on diagnosis of the illness – funds that will to help pay for a period of convalescence, pay for changes to home or car to accommodate a reduced state of mobility and go towards maintaining your independence. Without, perhaps, the burden of your mortgage and with money in the bank you can then decide whether you need to get back into the rat race that put you in hospital in the first place.
Income Protection v Critical Illness cover?
Critical Illness cover goes hand in hand with Income Protection/Permanent Health Insurance (PHI) as the latter pays a monthly income in event of illness but which would stop once you were assessed as having made a satisfactory return to health. Unfortunately this early suspension of the payments on a PHI policy means you’re forced back to work, perhaps prematurely, without potentially fatal consequences.
The lump sum pay out from a critical illness policy would be yours to keep, regardless of a return to some measure of good health and could maybe allow for some changes to your work pattern etc. Again these changes could be significant enough to help you to avoid a re-occurrence of the illness which is important as a second bout of many of these conditions can prove potentially fatal.
What to look for in a critical illness policy?
When you are considering straightforward life insurance policy, in our capacity as Independent Financial Advisers , we will always look to ensure any premiums are competitive, that the approach of the underwriters is fair so that we can have a good chance of securing you the necessary protection and that the financial strength of the company is good (i.e. will the provider still be around to meet its obligation to you in 10 years time). When advising contractors on critical illness cover we must also take into account very many more issues.
- Medical definitions of what is covered are very important – these must be comprehensive enough to be of practical use to you in the event of a claim.
- The provider must also have a good track record of actually meeting claims- with life cover alone you’re either dead or you’re alive and so there’s no question of that insurer can avoid paying benefits out but with a critical illness the definitions of illnesses that will trigger a payout must be carefully considered!
- Premiums must also remain affordable throughout the term of the policy so that protection can also be maintained as you get older and are even more likely to fall ill.
Taking these points into consideration may mean that cheapest may not always be best and as Independent Advisers, working for you rather than an insurance company, we will be on hand to guide you.
Types of critical Illness policy
You can cover yourself for a fixed term (i.e. until children grow up /a debt is repaid) or for your entire life (Whole of life - WOL).
You also have the option of a decreasing amount of cover (Decreasing Term Assurance, DTA) that will reduce in line with a reduced liability – i.e. a repayment mortgage or a level amount (Level Term Assurance - LTA).
Ordinarily these policies will pay a lump sum but if you have reservations about the ability of you or a dependent to cope with a one off payment you may prefer to insure yourself for a set term but have benefit payable annually if you fall ill within the term. In this way it may be easier to for you or a partner to budget. This scheme is known as a Family Income Benefit (FIB).
Taking additional ‘waiver of premium’ benefit is recommended as it ensures that premiums are maintained by the insurer if you suffer less serious illness that has meant that you are unable to work for 6 months or more. Often the first casualties of a tightening budget brought about by loss of income are insurance premiums and its vital that cover is maintained in such circumstances because it will be more likely that such long term ‘minor illness’ will ultimately trigger the lump sum payout of a critical illness policy.
To find out more and request a personalised quotation , without obligation, please complete our Critical Illness Online Form and an adviser will be in touch shortly.