Disability Income and Insurance protection
Insuring against Disability
Disability can strike at any moment, health is a luxury that needs to be protected but no matter how hard we try it has a nasty habit of failing when we least expect it. What about accidents, again we don't plan to have them they just happen and they often leave us with a disability. Becoming disabled is a life changing experience and one of the first things we lose after our health is our income, usually it is our ability to earn an income that goes not the income itself.
What steps can we take to protect our income from ill health and more importantly can we afford to do nothing?
I want to point out that this is not an article trying to sell you disability insurance, we will discuss it but it's not the point of the article; the point is to do whatever you can to protect yourself against disability and it's effects.
My wife became disabled, we were not prepared for it. This article is written to look at all of the issues around becoming disabled and losing your income, the information is written predominantly for UK readers but most of the problems faced when income is lost to disability are universal so check the details in your area of help available to persons with disabilities.
As I have already said most people who develop a disability usually do so later on in life, the problem with this is that we build up a lifestyle and take on financial commitments based on our current income only to find that disability stops us being able to maintain them.
We all see the adverts for disability insurance, critical illness cover and health insurance but most of us ignore them; we think it will never happen to me. We watch the news and see the welfare reform bill discussions, again disability living allowance, employment and support allowance are all benefits for other people not me. We are advised to save money, put something away for a rainy day, 75% of people ignore this advice as well so when disability knocks on our door we are ill prepared for it.
Here we will look at the options and help are available to us if we are unfortunate enough to be visited a disability or a serious ill health condition. It makes sense to point out that becoming disabled doesn't mean you will automatically lose your income but it won't do you any harm to prepare for it.
Disability Insurance and Critical Illness Cover
There are steps we can take in advance to protect ourselves from the effects of disability, two of them we touched on earlier.
Disability insurance and critical illness cover are both income replacement insurances, often these policies have a lump sum payment and an ongoing income element to them but are they really worth it.
Investigating these insurance policies is an absolute nightmare, they are extremely difficult to understand because they have so many variations, far too many clauses and can be very expensive. If you are considering taking out a disability insurance plan or protecting yourself against critical illness then you need to consider the following points very carefully:
- Pre Existing Conditions- this is the hardest part to get your head around. Every insurance policy we looked at had clauses about pre existing medical conditions. In short what this means is that you will not get insured for medical conditions you already have or conditions that can be linked to other conditions or ailments you had before taking out the policy. In practice lets say you smoked 20 years ago but don't mention it on the application because you have been a non smoker for so long. Down the road you develop lung cancer, you can be sure that when the insurance company see your medical records and note you were a smoker they will not pay out. The best advice we can give is tell the truth on your insurance application, read the small print and use an independent insurance broker so they can interpret the rules for you.
- Price of Insurance- as if it wasn't hard enough to understand the terms and conditions on comes the price. There doesn't seem to be any standardised pricing policy when it comes to insuring your health, each company has it's own policy which makes them problematic comparing to their competitors. A general rule of thumb should is "you get what you pay for", now I know that this is not always the case but in disability insurance terms it does make sense to buy the best you can afford.
There are may insurance comparison sites and these are a very good place to start your search for disability insurance, once you have a short list seek out a broker that gets paid a flat fee rather than a commission. Let the broker find a policy that suits your needs, don't be tempted to withhold information thinking it will reduce the price because in the long term if you need to make a claim you don't want any complications.
In the UK we are blessed with National Health Service, the NHS is the envy of the world offering free health care at the point of need regardless of your financial ability to pay. There are times however when the system falls down and waiting for treatment simply isn't an option.
The private health care industry in the UK was dominated by Bupa for many years, it was expensive and mainly purchased by companies to insure their key men and women against illness. Insurance companies recognised an untapped market and developed a range of health care plans that were available to the mass market and private health insurance became a choice and not a luxury.
As the industry evolved so did the insurance policies with ever more conditions being excluded and prices rising. There are still good health insurance deals about, often these are linked to other financial products such as bank accounts, mortgage protection and life insurance policies. The sensible advice would be to shop around, contact your existing insurers and find out if they offer private health insurance at a reduced cost as part of your current deal.
Payment Protection Insurance
Unless you have been living on another planet you will not have escaped the payment protection scandals. Payment protection insurance was designed to pay your premiums on loans and other financial products should you lose your income through ill health or unemployment, in itself not a bad thing. The problems arose when companies started mis-selling these insurance policies by simply adding them without telling you or selling them to people without explaining what they were covered for, only to find that at the time of claim it was obvious the product should never have been sold.
I still believe that payment protection insurance has a place, at a time of losing your ongoing income through disability it is a great relief to get your premiums paid. Always check the details of the policy before you buy it and again do not withhold any health information as it will be a false economy.
We all pay our taxes and almost to a man we hate paying them. There is a point to these taxes and in times of need income replacement benefits and disability benefits are the point.
The welfare benefit system is unbelievably complicated, you almost need a degree to navigate it. For this reason the current government are reforming the whole system with the emphasis being on making it fairer, fraud proof and more affordable. In terms of how this affects people with disabilities or serious ill health conditions only time will tell but at present the following help is available:
- Employment and Support Allowance- this benefit was introduced in 2008 and replaced Incapacity Benefit for all new claimants, at the time of writing all Incapacity Benefit claimants are being transferred over to ESA. In short if you are unable to work through ill health or disability then the benefit will pay you an amount each week to help with essential living expenses, the amount you are paid will be based on the results of a medical assessment. In theory this sounds great but this has been a controversial benefit as the assessments have failed to recognise the severity of many health conditions. The system isn't perfect and the rules of entitlement are complex but it is there and does help many people when their income drops due to ill health. The government are tweaking the system so hopefully any deficiencies will be ironed out.
- Disability Living Allowance- DLA as it is commonly know is not an income replacement benefit instead it was designed to give you an amount of money for help towards additional expenses incurred as a result of disability. It is not he condition you have rather the effect of the condition on your daily living that matters. The rules are again complicated as there are different rates payable based on your mobility and self care needs. To qualify for this benefit you need to be able to demonstate with evidence that you are effected or at a disadvantage as a result of your disability.
- There are other benefits available along with grants and services should you become disabled. It would be impossible to discuss them all in this short article but I would urge you to seek advice and check your entitlements.
At the time of writing the welfare reform bill is proposing to integrate a number of welfare benefits under the umbrella of "The Universal Credit", on paper this looks like a good thing but only time will tell. The government are also proposing the scrapping of DLA and replacing it with a "Personal Independence Payment", we won't know until more details are released whether this is beneficial to disabled people or not.
Protecting Your Income
So far we have looked at disability insurance and welfare support, it would be wrong if we didn't consider other options to protect ourselves against a drop in income caused by health problems.
Check with your employer if you have one to see what provision they have for the ill health of one of it's employees. Organisation often have schemes that you can opt in to, schemes that pay you when your employer isn't able to. Insurance companies sometimes offer group discounts to employees, potentially this could save you a lot of money.
Saving for a rainy day is habit we could all do with catching, spend today forget tomorrow is the way a lot of people live their lives but when health fails and income falls this is an lifestyle we can live to regret. I am not a financial adviser and am unable to tell a good investment from a bad one but I would recommend saving a little each month as part of your disability income protection plan. Unless you are able to save large amounts each month; in which case you can ignore this advice, I would work out how much money you need to survive for 6 months without getting into debt, once you have this figure divide it up into manageable monthly amounts and save that amount each month.
Maybe you haven't got any spare cash to save with, if this is the case or to compliment your savings plan why not try and earn extra income and save that instead. Take writing on Hubpages for example, it is unlikely you will vast amounts of money but every little helps and if left in an account will soon build up to a reasonable amount. You realistically could earn enough to pay for an insurance policy so it wouldn't cost you anything to protect yourself against disability.
None of us want to think that we will be unable to support ourselves if we become disabled but the reality is that it is happening to people like you and me every single day. The easy thing to do is bury our heads in the sand and hope for the best, this is a cavalier approach to something that is inevitable for most of us. One thing we can all be sure of is that as we get older our physical and mental health will most likely fail, what are we doing about it now to protect ourselves as it's too late when it happens.
I wrote disability income because when disability struck my wife our world was turned upside down, all of our plans and dreams collapsed overnight and survival kicked in. Hindsight is a wonderful thing and I wish I had read this article prior to it happening to us, if you take anything from this article let it be to do something to protect yourself and leave nothing to chance.
Thank you for taking the time to read this and I wish you health and happiness for the future.