Protection insurance, such as critical illness and income protection, is designed to provide a financial cushion if you can’t work, but there’s lots of uncertainty as to whether these policies will pay out if you’re affected by coronavirus.
Hundreds of thousands of people have already lost their jobs or seen their incomes fall due to the pandemic, or may be worried that they may need to take time off work if they develop symptoms of coronavirus. Many people will be relying on their protection insurance to provide them and their loved ones with financial security until the crisis is over.
Here’s our rundown of some of the different types of protection that are available, and where you stand when it comes to making a coronavirus-linked claim, or if you’re considering buying cover for the first time.
Income protection, as the name suggests, is designed to provide you with a regular income if you’re unable to work because you’re unwell or have had an accident or injury. Redundancy is not usually covered by this type of policy.
In the event of a claim, income protection will usually pay out a percentage of the amount you earn, typically around half your salary. You’ll receive this amount until you’re well enough to go back to work, or until you retire or pass away, whichever happens first. Payments are tax-free.
Where you stand for coronavirus claims: Most income protection policies have a deferred period which typically ranges from one week up to 12 months, which means you must wait this length of time before your cover will start paying out.
This means if, for example, your policy has a four-week deferred period and you’re only unwell for a couple of weeks, you won’t be able to make a claim.
If you need to be off work for longer than the specified deferred period on your policy, then typically the normal claims process will apply, and you should be able to submit a claim.
Ben Heffer, spokesman at independent financial information business Defaqto, said “Insurers that offer shorter deferred periods – one week, four weeks, eight weeks and back-to-day-one cover are publishing guidance at the moment. In essence, if you are unwell and cannot work, the claim will be paid. But, if you are not working because you are self-isolating, you will receive no benefit. Some providers say they will consider each case on its merits, but they would need you to have tested positive for Covid-19 and/or have been quarantined on the direction of your doctor – self-isolation is not covered.”
If you’re planning on taking out a new income protection policy now, bear in mind that most insurers have introduced coronavirus as an exclusion, so always check the small print before buying.
Accident, sickness and unemployment cover
Accident, sickness and unemployment cover is a type of short-term income protection policy which will usually pay out for up to a year if you can’t work because you’ve lost your job, are unwell or have had an accident. Whilst it works in a similar way to income protection, the main difference is that ASU cover also includes unemployment whereas most standard income protection policies don’t.
If you claim under the unemployment element of this type of cover, you must usually demonstrate that you’re applying for a set number of jobs per month. If you subsequently become ill and want to switch your claim from unemployment to the sickness element of your policy, you’ll need to contact your insurer to ask if this is possible. Tom Conner, director at advisers Drewberry said; “The policyholder should also ask if they would be required to see out another deferred period before the claim became eligible and I’d imagine if they have cover for 12 months of potential payments, it would be 12 months for the combined claim rather than an additional 12 months with a new claim starting again.”
Where you stand for coronavirus claims: If you’ve taken out this type of cover prior to the pandemic and can’t work due to sickness or because you’ve been made redundant, you should be able to claim. However, if your policy has a deferred period before you’re able to make a claim, and you’ve been off work for less than this, you won’t be able to claim yet.
If you want to buy a new accident, sickness and unemployment policy now, you might not be able to. Due to unprecedented volumes of claims from existing policy holders, most insurers have withdrawn the unemployment cover from new policies, meaning they are essentially offering basic short-term income protection policies covering accidents or sickness, most of which will have a coronavirus exclusion.
Critical illness insurance covers a set number of serious illnesses specified on the policy. These can vary depending on which provider you go to, but typically include cancer, multiple sclerosis, heart attacks and strokes.
If you are diagnosed with one of these illnesses, your policy should pay out a tax-free lump sum.
Where you stand for coronavirus claims: Coronavirus isn’t one of the specified conditions included on critical illness policies. However, if you have complications as a result of the virus, such as liver, kidney or respiratory failure and these are included in your policy, then your claim could be paid, subject to your policy’s terms and conditions.
If you want to apply for a new critical illness policy, many insurers have now added new questions about coronavirus and will want to know whether you’re currently experiencing any symptoms. Bear in mind that as providers are receiving more calls than usual, and they may want to speak to your GP about your medical history before accepting your application, wait times to take out a new policy are likely to be longer than usual and could take weeks, if not months to be accepted.
Life insurance, often known as life assurance, is designed to pay your loved ones a lump sum when you die. There are two main types of life insurance, ‘term’ insurance and ‘whole-of-life’ insurance.
With term insurance you take out cover for a set period. If you die within this period, the policy will pay out, but if you die after the policy term has finished, your dependents won’t be able to make a claim. If you have whole-of-life cover, you pay monthly premiums until you die, and you will receive a guaranteed pay-out at this point. Whole-of-life cover is more expensive than term insurance as a pay-out is guaranteed at some point. You can learn more about the different types of life insurance here.
Where you stand with coronavirus claims: If you had life insurance in place prior to the coronavirus outbreak, then your policy should pay out if you die after contracting the virus.
If you’ve been diagnosed with coronavirus and want to take out life cover, insurers are unlikely to accept your application until you’ve fully recovered and can show a negative test result for the virus.
Assuming you’re in good health and haven’t experienced any coronavirus symptoms or been diagnosed with it, it is currently still possible to buy new life insurance which doesn’t exclude coronavirus. Always make sure you check exactly what you are and aren’t covered for before buying.
It’s a good idea to get quotes from several different insurers before buying life cover, as premiums will vary depending on who you got to.
We work with two different life insurance brokers who can help you compare the cost of cover and find the right policy to suit your needs. They are LifeSearch* and ActiveQuote*. With LifeSearch, you simply enter your name and contact details and a LifeSearch adviser will call you at a convenient time to provide you with fee-free advice and no obligation quotes.
With Active Quote, you can compare term assurance quotes and arrange cover online, choosing how much cover you want, how long for, and whether you want a level or decreasing quote. Again, the service is fee-free. Find out why life insurance is important in our article Why life insurance matters.
Employer and employment-related policies
Many people have life cover and income protection included as part of their employee benefits package.
If you have this cover as part of your employee benefits package, it’s worth considering whether any changes to your income and employment status might affect your cover.
Ian Martin, financial planner and employee benefits consultant at wealth management company Quilter said: “For those people whose jobs are affected by Covid-19, it is important to ask not only how it will impact your income, but whether there is a knock on impact on other employee benefits.
“If you make a claim on a life, critical illness or income protection policy arranged through your company then the payment might be calculated based on average earnings, so a future claim could be lower due to a period of reduced pay.”
Are you thinking about buying income protection, critical illness or life cover, or have you recently taken out any of these types of cover? If so, we’d be interested in hearing from you. You can join the money conversation on the Rest Less Community or leave a comment below.