When even cancer may not qualify as an illness

PERSONAL FINANCE:Insurance may help if you are unable to work due to illness – but what will really make you sick is finding you're not covered despite costly premiums

IT IS SOMETIMES said that your greatest asset is your ability to earn an income. Of course, it’s usually a salesperson saying this as they slide an application form for some kind of insurance product towards you. But regardless of pushy sales patter, it is prudent to plan for the possibility of being unable to work due to an illness or injury, and one method of doing so is through insurance.

Before you go down the insurance road, however, it’s important to check what supports your employer or the State would provide should you fall ill. If, for example, you’re a permanent employee in the civil service, you’ll be entitled to full pay during certified sick leave, up to a maximum of six months in one year, after which you’ll drop down to half-pay.

At the other end of the spectrum, you could be working for a company with a policy of not paying its employees at all while they’re on sick leave, as there is no legal obligation to do so. Make sure to check your employment contract to find out exactly what your entitlements are.

If you have no entitlement to pay while you’re off sick, you can apply for Illness Benefit from the State – if you’ve made enough PRSI payments – but this only amounts to about €10,000 a year. The self-employed are particularly vulnerable as they won’t even qualify for this benefit.

If you don’t have sufficient savings in place, or a supportive spouse with a good job, to tide you over and cover the bills during extended periods of sickness, then it’s worth looking at insurance products that could fill that gap. Beware, though: unless you spend time familiarising yourself with these products, you could end up with an unsuitable policy and a false sense of security.

According to John Geraghty of online discount brokers LABrokers.ie, a great deal of confusion exists between private health insurance (which pays for private medical care); income protection insurance (also known as permanent health insurance); and critical illness cover (now commonly called specified illness cover).

Specified illness cover is designed to pay out a one-off lump sum once a person is diagnosed as suffering from one of the illnesses listed in their policy. The main use of this type of product, Geraghty says, is to pay off a mortgage in the event that an individual becomes seriously ill and unable to work.

Where problems can arise, he says, is if the customer’s interpretation of a serious illness differs from the policy wording. For instance, an individual who is diagnosed with cancer might expect their insurance policy to pay out, but the fine print may state that the disease must be invasive before the policy is triggered.

According to Karen Gallagher of Friends First, there has been a move across the insurance industry to re-label this type of product as specified illness cover (as opposed to serious or critical) to make it clearer to consumers, when they are being sold the product, that it will only pay out for those illnesses specifically listed in the policy.

Some providers are making greater efforts to ensure that consumers are not being misled by being more upfront about the limitations of their product. For example, although New Ireland lists rheumatoid arthritis as a specified illness, the company points out in its policy document that approximately 90 per cent of people with this illness do not have conditions severe enough to trigger a claim. Similarly it highlights the fact that although muscular dystrophy is a specified illness, it is only covered in “the rare cases” where it is not hereditary. “It is important that customers don’t get the false impression that those with a family history can get cover,” it says.

One of the major advantages of income protection insurance is that it provides a much wider level of cover. Essentially it provides a replacement income (after a deferred period, which can range from 13 to 52 weeks) if you are prevented from working by any illness or injury. The maximum replacement income is generally set at 75 per cent of your salary level, less any sick pay or State benefits that you receive. Another advantage is that, unlike specified illness cover, income protection premiums attract relief at the individual’s higher rate of tax.

So how much will these types of insurance set you back? For a 35-year-old male accountant looking to insure a replacement income of €50,000 a year, payable until the age of 60, the cheapest cover on the market costs €57.35 a month (before tax relief) with Irish Life. For a woman of the same age and profession, the lowest quote is €84.60 (again, before tax relief) with Friends First. Geraghty explains that this is higher because women are statistically more likely to be out of work on sick leave.

People working in higher-risk jobs will face higher premiums than those quoted above, and people in certain occupations, such as farmers and taxi drivers, may find that they can’t get income protection cover at all.

If the same 35-year-old man opted for specified illness cover instead, with a lump sum payout of €100,000, the cheapest provider would be Caledonian Life, charging €32.31 a month. For a female of the same age, the lowest-cost option would be with Zurich with a premium of €34.42.

Don’t be swayed by price alone though. Products differ significantly between providers, so make sure to compare the level of cover offered as well.

A common concern with consumers is whether or not they will actually be able to claim on their policy should the need arise. According to Friends First’s Gallagher, the claim acceptance rate is higher for income protection policies, as they are more strictly underwritten at the outset.

Not everyone will be accepted for this type of cover; factors such as their health, occupation, level of income, and occupation are examined (although it’s not always necessary to do a medical test). As a result, the claims acceptance rate across the industry for income protection insurance averages about 90 per cent, she says, compared to between 70 and 75 per cent when it comes to specified illness cover.

Still unsure which type of cover to opt for? Many experts in the insurance industry are of the opinion that people’s first priority should be to have adequate life cover in place, followed by income protection and finally specified illness cover.

A key point to remember is that none of these products cover redundancy, so you will need to make separate provision for this possibility.

Geraghty advises people to take out appropriate products to meet their needs, but not to take out insurance just for the sake of it. “You could pay all of your life savings into insurance products and still not be covered for every eventuality,” he says. “There’s a balance to be struck between having a life and having adequate protection.”