YOUR lifestyle is based on your health and financial security. Just consider for a moment how you would fare if you were to fall ill or lose your employment.
The commitments would still continue - from mortgage payments (interest and possibly the return of capital borrowed) to monthly sums on credit cards and a personal loan, and for any purchases from a car to a television.
Such insurance can be an expensive purchase, but may seem tempting if a shop assistant or bank clerk offers to complete the paperwork in seconds and add the cost to your overall bill.
Instead, it's far better to have your position analysed by an independent financial advisor who has the expertise to discuss the respective protection plans and relative costs.
The worst scenario is just to assume that such a potential disaster will never occur and ignore protection cover. Perhaps because of its complexity - or through people preferring not to consider personal mortality - more than 18 million adults in the UK have no life insurance.
A specialist advisor will not recommend a policy with key exclusions, but the bad publicity of many policies has caused the Office of Fair Trading to study the market.
Much of the problem lies with high street banks who sell payment protection insurance (PPI) when a loan, mortgage or credit card is taken out. The premiums reach £5.4 billion each year.
Research by the investment bank Morgan Stanley estimates that retail banks obtain up to 20 per cent of their profits from PPI. The consumer website Uswitch.com found that banks charge up to 467 per cent more for PPI than brokers.
The premium can be steep. Over five years, if a £10,000 loan at 6.4 per cent is taken out, a PPI premium could add more than £4,340 to the repayment.
One advantage of taking out a stand-alone policy is that it can cover all your financial commitments, rather than just one.
It is vital to look at exclusions. While claims for motor insurance account for 74 per cent of premium income and 55 per cent for home cover, it is down to 15 per cent for PPI.
If you are either self-employed or a contract worker, PPI is unlikely to be of use. Similarly, if you give up work as a result of a bad back or mental illness, an exclusion clause will prevent a payout. Unfortunately, many lenders automatically include PPI in their quotations and prospective clients do not realise that they can shop around for a better deal.
Income protection - formerly called
permanent health insurance - provides a replacement income that is free of tax whilst you are ill. It continues until you are able to return to work or retire or die. For an extra premium, unemployment can be added.
Premiums are fixed and, regardless of the number of claims, will not increase. However, ask about the definition of "inability to work". A good policy stipulates that you are unable to undertake your job, not just any work.
The next-best policy states that payment will be made if you are unable to fulfil a job for which you are trained or have the experience. Occupations like teaching often command higher premiums than manual work as there are more stress-related claims.
"Young couples with a family are the most vulnerable; it is crucial they have income protection, but a waste of money for those in their 60s," warns Alex MacLean of Ian MacLean & Co.
Family income benefit - which pays out an income rather than a lump sum - costs around one-third of standard life cover.
The third type of lifestyle protection is for critical illness. This ensures not only that there are funds to help with treatment costs but also adaptations to your home as well as clearing debts. Insurers vary on the conditions on which they will pay out. Most exclude prostate cancer and non-invasive skin cancer.
"Go for the range of cover, rather than just price," says Alistair Blythe, of Edinburgh-based ABI Financial Planning. He likes the critical illness terms offered by Royal Liver Assurance.
An experienced broker has several advantages over an internet approach. Not only can they tailor the enquiry to the personal circumstances, but they can also check if non-household names might be more appropriate. Furthermore, if things do go wrong, for those who have taken the internet approach, there is no access to the Financial Ombudsman Service for compensation.
With better ways to treat conditions that formerly were life-threatening, critical illness policies that have been written more recently are likely to exclude such cover to gain a premium price advantage.
While bad publicity on claims not being accepted has deterred some, research has shown that non-disclosure in the early years of a policy was a major reason for insurers turning down a claim. It is not adequate to think that merely supplying contact details of the GP will suffice. Applicants need to divulge their true medical condition and treatments received.
Those thinking of trading in an established policy just to reduce the premium may find a far inferior range of cover. Claims are referred to one's doctor and, if it is confirmed that the condition has been treated for some time but not originally declared to the insurer, it will be ruled invalid. Insurers are trying to clarify their limitations and are being guided by the Association of British Insurers to produce a uniform, clear set of parameters.
One broker, for instance, found a client disappointed that her critical illness policy would not pay out after two nights in a local hospital which was followed by a fortnight off work. Older critical illness policies - issued five or more years ago - were generally offered with guaranteed premiums. That position has changed.
Expect reviewable premiums to be offered with higher payments as medical advances take place.
If a firm is still prepared to quote with a fixed premium, whilst the initial payments may be higher, it could prove overall to be a better deal.
