Explained: Life insurance, income protection & critical illness

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0:34After your trial, you'll save an extra£5 a quarter on the subscription, which is exclusive to Making Money listeners. And that's moneyweek.com forward slash money. But there's a link in the description if you just want to click that. You don't know what's going to happen to you, right? You know, you hear about people having strokes in their 30s and you think, well, actually, if you have a stroke in your 30s, you're never working again. Naomi Greater-X is the Managing Director of Insurance Broker Heath Protection. It's not pleasant thinking about dying or getting seriously ill, but what happens if we don't cover ourselves from the worst things that can happen?

1:06Because we don't like to think about the worst things happening to us, we don't think it actually will happen. Today's conversation, there's a saying in the insurance world that goes something like, insurance is never bought, it's always sold, which I think reflects the fact that no one really wants insurance, but sometimes we do need it. Today, I just want to have a conversation about the different types of insurance around protecting individuals so that people can just listen and kind of understand what it is and why they might need it without being sold to, if that makes sense. First of all, I know something came up in the briefing call that I'd like us to start with.

1:42Could you just explain what the most popular insurances are in the UK at the minute? Yes, that's a good question. So I think when you're looking at the UK market, I think car insurance is always one we have to buy. So everybody buys car insurance home insurance contents because people are worried about a leak or you know your jewelry being stolen but an interesting one is pet insurance so obviously pet insurance in the UK is super super popular and actually it's more popular than life insurance so um and and I guess the reason for that is because we all love our pets and we're worried about what might happen if they get sick and you've got vet bills um so people want to insure against that but it's surprising to know I think that more people are insuring their pets than themselves.

2:29It's a madness isn't it? Yeah. Because obviously the pet bills like you're thinking oh god if Tibbles gets ill it's a five it's a five grand bill. Yeah. But then if your wife dies. Yeah. That's pretty spenny. Yeah yeah yeah. And people would rather protect the dog than themselves. Which is kind of madness. Yeah my dog's got a lot of life insurance health insurance whatever it is dog insurance is a Japanese Akita, big dog, but yeah, when they get sick, it is so expensive to look after them. I don't have life insurance, but I do have health insurance. Yeah. Yeah. Little bupo. Yeah. So I had an incident recently where like on a night out, someone, I was assaulted by a stranger, like complete sucker punch to the side of the head.

3:13And after coming round from that, like I was in the hospital and she was like, well, they hit you, it knocked you out. You smashed your face off the floor. If you'd fallen on this side of your head, you'd probably be dead. So you're pretty lucky. And it was kind of like one of those moments of like, I had absolutely no control over that. Didn't even see it come in. Just woke up on the floor. Didn't even know what had happened. And I got insured after that because it was kind of like a wake up call. I know that random stuff can happen, but do you have any insight into kind of how important it is and like how common these things are to happen to people?

3:43Yeah, I think that's a really good point because I think we don't really consider the risk to ourselves until, you know, something... Slaps you in the face. Something literally slaps you in the face. Like Mike Tyson, everyone's got a plan until they get punched in the face. He's talking about you, Mike Tyson, once again. Maybe he hit me. It looked like it. Yeah, it did. I was a mess. Yeah, it is true. And that is the thing. And I think we all, because we don't like to think about the worst things happening to us, we don't think it actually will happen. but the stats are quite scary actually. I think when you, I know.

4:189am mate, strap in. It's too early in the day. I haven't eaten breakfast. You were talking about death and life insurance and I'm an optimist. So like this is going to be a tough conversation. I hate your beggaty, you're going to die mate. No, I'm not. Stop lying. Poppy cough. Even worse, I'm going to talk about the probability of death and critical illness. Let's go strap in. Yeah. So when you look at the probability and when we look at the stats, you've got one in four chance of suffering a critical illness before the age of 65 and a one in four chance of suffering an illness, which means that you can't work before the age of 65.

4:51Critical illness, is that like breaking a leg or is that like an actual illness? Yeah. So, yeah, that's a great question because they do all sound very similar. And we do use lots of like jargon, I think, in the protection market, which is super unhelpful. but so yes the critical illness is covering you against a serious event so we would say something which is going to make a real difference to your life so being diagnosed with cancer having a heart attack you know having a stroke being diagnosed with MS so it's something where you would need a sum of money in order to be able to get yourself through that so if you think about that and that's a one in four chance.

5:31One in four? Yeah. Oh. I know. Sorry, sorry, sorry. They're the stats. It's not me. There's five people in this room. Yeah. One of you is going to get ill. I know. Yeah. Is it too early to start drinking? Yeah. Yeah. And then the income protection is for the illness cover. So that is your breaking a leg, you know, falling down the stairs. It's, you know, being diagnosed with mental health and, you know, hurting your back. it covers literally it covers such a range of different illnesses but that is what that statistic means. What are the so you talk about there's like critical illness which is you know I'm in hospital I'm seriously ill income protection was it is like you've broken a leg or you something's happened that's put you out of work temporarily like a couple of months is that kind of time frames?

6:22Actually income protection couldn't be for anything okay really so critical illness is based on a a list of illnesses so it covers the big stuff income protection is for a reason that you're not able to go to work and do your own occupation why would you know both so so because they are different so with the income protection what you're doing is saying okay if i was off sick from work would would my employer pay me and for how long and then say you get a month of sick of work then what we would do is say okay well what happens in month two and that then that's what we would be protecting your income so your ability to earn some money after month two the insurance would pay you an income until you return to work critical illness is based on being diagnosed with for example cancer and then it would pay you a lump sum and diagnosis so you get that lump sum it's yours it's done so say if you were diagnosed diagnosed with cancer you had 50 000 pounds critical illness uh you would put your claim in with the insurer they would pay you the money and and your policy finishes.

7:26Income protection is something that runs alongside your work until you retire. So you can make more than one claim. It can pay multiple times and it can, you know, pay for the same thing or a different thing. It is really there. It's like a privatised sickness scheme. And could you get, you could end up with the lump sum and then be getting paid every month, theoretically, for indefinitely till you're sick, till retirement age? If like, let's say you could never work again. Yeah, exactly. Yeah. So you'd get your lump sum. So they work together. For critical illness. For critical illness. Yeah.

8:00So they complement each other. You'd get your lump sum for the critical illness. And then if you weren't able to work, if you have a long-term income protection plan, it will pay you until retirement. An interesting number that Liverpool Victoria came up with their claims last year. Their longest claim was for 38 years. For income protection. Yeah, for income protection. I know someone who's been on it for 25 years. What kind of injury? well it was like they just they just can't work because they've got internal issues i mean i don't really go into it with them but yeah it's a family friend but she's not worked for like 20 odd years she worked in insurance she worked for zero she's got insurance we're all insured yeah yeah yeah got signed got signed off with long-term sickness and has been claiming that benefit ever since yeah yeah so and that is exactly that's that is the benefit of income protection you know you're going to get that monthly amount until you return to work do you the one thing that you know i would say about insurance or the feeling I've always had is they don't want to pay me and I'm just giving them money and then they're going to be like, oh yeah, but you are only insured on the left side of your body, not the right.

9:01Or do you know what I mean? Some technical detail. And is that, is that the case? They literally just did that to me and my son. Like, yeah. So like they, they always like, they say they cover you, but then when you actually need them, they don't always like health insurance. They don't always cover you for what you need, or there's an excess to pay, which is really annoying. Yeah. Um, with, with this type of insurance, because it's fully underwritten up front, you have the peace of mind, I think, of knowing that as long as you've given the right information. I'm going to hit that. Doesn't work.

9:28I hit the buzzer because... It's because I hit the buzzer. You don't have the clout, Damien. Stick to your job. Let me hit the buzzer when it's time to hit the buzzer. What does that mean? Stay in your lane, mate. I don't know what it means, clearly. So, no, it's basically we hit it if there's a term where we're not sure. So I just want you to clarify what you mean underwritten up front. Perfect. Yeah. Yeah, of course. Yeah. I'm going into protection speak again. It's okay. Yeah. So when you apply for insurance, life insurance, critical illness, income protection, part of the process of being able to put that in place is that you have to answer health questions.

10:07So each insurer will have a list of health questions that you have to answer. And we would go through those with our clients and talk them through it. But basically, they want to know all about you. they want to know how much you drink if you smoke they want to know what your history is health wise so we would put all of that information in an application and then you submit it to the insurer and then the insurer will look over that and say okay based on all of this information we're happy to insure you uh here's your insurance and that's what it means it means that they are looking at all of your medical information up front so that when you get that insurance you know that as long you've given all of the information that they need and been truthful that our insurance is yours and it is in place do you think people are truthful because if they're like how many do you smoke do you smoke and then they're like how many a day and you're like one cigarette every two weeks and it's like clearly not like do people not how much do you drink and no one's gonna be like i get lashed every weekend i have like 20 beers on a saturday like a bottle of wine on sunday and yeah so like yeah people obviously trying to downplay it to make them i go to gym five days a week but they don't go to they go once a month do you does that affect it and how much do you think people are fudging the facts i think it's i would always say like we ask our clients questions and like ourselves and we always say it's super important that you tell the truth right because you're taking out this insurance because you've got a need and the need is that you want to know that if you're sick if you get critically or if you die you're going to get a payment so the importance there is make sure you're truthful on your application because you don't want any reason at the end for the insurance not to pay out.

11:45So when people say to me, I smoke at weekends, I'm like, you're a smoker. You smoke at weekends. So, you know, it's important to say that. Or I vape. And vaping is actually... It's a cancer smoker. It's cancer smoking, yeah. So we explain all of this up front so that clients know because it's really important. And when they come to make a claim, you know, they've got all of the information that they need and it's all correct. Will the insurer say check your lungs on death? So if you die in a car crash, would they like cut him open? Oh, he's got black tar in the lungs. He's a smoker. He said he wasn't a smoker.

12:20We're not paying. I guess it's difficult. He was holding a cigarette at the time of death. He was holding a face mate. Yeah. Asking for a friend. I guess it's difficult to say that, isn't it? Because what you have is you have smoking and non-smoking status and you can be an ex-smoker. so the point is you know if you gave up smoking you'll get non-smoker rates so that becomes a bit difficult I think it is more people get caught out on the evidence that's then collected you've got to be careful because people are more honest to their GP than they might be to the insurer you know I'm always honest to my GP like she knows everything about me and I'm just like yeah that's confidential right but like yeah I'm always honest with the doctor but then when it comes to other things you're not always you always put yourself in the best light But with the doctor, I'm like, yeah, I do this, I do that.

13:10Yeah. So, yeah. Yeah, exactly. And what you've got to remember is when you're making a claim, the insurers are going to write to your GP and collect all of your medical evidence. So that is why we say don't put a spanner in the works, you know. You want to know. Right. If you're writing£100 ,000 of life insurance for your child, if you were to die, they're going to get the money. What is a good amount of life insurance to have, would you say? You said£100 ,000 there. That's just an example. So what we do is we talk to clients a lot about their kind of circumstances, right? So if you've got a£700 ,000 mortgage, then you're going to need at least£700 ,000 worth of life cover.

13:48I guess it depends. We talk a lot about people with children. So, you know, what's the cost of, you know, if a parent dies, the cost of bringing up a child alone. So we talk about life insurance as an income so that people can cover that. So there's various different ways to set up life insurance and for different amounts depends on the need. So there's no number there. And is there kind of like an average cost, would you say? Say you're like typical person. Yeah. Is there like what kind of figures should people be thinking about for life insurance, critical illness or any other covers? Yeah, interesting.

14:27So I did some like brief quotes for you to give you a bit of an example. Somebody in their 30s, someone that's 30, that's looking for£100 ,000 worth of life cover to age 67 would be under£10 a month, so£2.50 a week. Critical illness, so if you were looking at, I think it's£50 ,000. Hold on. Yeah, it's fine. Check your notes. Check my notes. It's good. I want to get the numbers right. No, it's good. We have people come here talking all sorts of nonsense. Without any notes, it's good that you got the facts. It's good that you got the facts. Yeah, so for the critical illness of£100 ,000, it would be£35 a month.

15:04And for£50 ,000, it'd be£18 a month. That's£50 ,000 a year? £50 ,000 is a lump sum. Yeah, so you couldn't call this as a lump sum one. But that was like£50 all in or something that you said there. Like what were the figures? So for all the covers. Yeah, and then income protection. So for a 30-year-old,£2 ,000 a month and that's full income protection. So you'd be able to claim it until you retire to win back to work. That is£33.75 a month. so£405 a year so they'll match your salary so you could get you could get that and then in the 12 months time if you could never work again you would get that as a salary for the rest of your working life so it's the same salary that you had well it's the amount that you've insured so what they typically do I think is they go how much does it cost you to live your life kind of thing rather than like how much you paid because a lot of people save and stuff and you might not need to save if you're just getting paid out so you can insure up to 60 % of your salary your gross income up to 60 % 60%.

15:59What about for business owners? Because I'm a business owner and obviously I take dividends and they can vary. And the problem I have is the business earns a lot more than I take out of it. Of course. So how does that work for them? So you can, is it a limited company? Yeah. So you can set it up through the business. You'd have like, it's like an executive scheme, so you can insure a lot more. So you can insure your dividends, you can insure your salary up to 80%. So you'd be able to insure that through the business. And also things like pension contributions and NI, you can do that all through the business.

16:33So you get much more flexibility in a business plan. It's also for any business owners out there, it's a tax deductible expense as well, isn't it? It's an allowable expense, yeah. Yeah, so it comes off before corporation tax and things. That's it, yeah. So even though you can actually, I've got quite a lot of cover and realistically after, I think I pay about£130 a month for everything, but I'm covered to quite a high level. Yeah. A million pound of life and things like this. Yeah. but it's actually relatively affordable still, even at that level. And like the numbers you're talking here, £10 a month for life insurance.

17:04There's a lot of - It's a lot of cover for not a lot of money. But the problem is, I think as well, is that people delay. So I think, you know, for a 30 year old, it's going to be one price. And then if you're 40, it's going to be more expensive. But if you get it when you're 30, do you have the same rate when you're 40? Like, or does it go up as you get older? It's guaranteed. So it's a same£10 a month for life. Exactly, yeah. And so yeah, Leisha Conway-Hughes, who I know you know, she sat there and said that she finds that a lot of people pay the same amount over their lifetime, whether they get it at 30 or 40.

17:39It's just because you pay more at 40. You're basically catching up on the premium almost. Is that how it works? Well, I would say for every year you get older, the premiums go up between 10 % and 15%. Oh, wow. So for every... It goes up a lot. Yeah, a lot, yeah. So for every year that you get older, the premiums in the market are going up between 10 % and 15%. So that is the extra expense. And then on top of that, you've got the change in health. So it's at 30 and 40, you know, a lot of things can happen. You know, so that is a problem. Are you insurable? Another thing I think as well that people might not consider is in your 20s, that's probably when you need cover because you don't have anything to fall back on.

18:19Whereas in your 50s, you might have built up an asset base where you go, if I die, my family will be okay because there's investments and savings and pensions. But it's actually the 20, 30 year olds are the least protected. They've got nothing to fall back on, have they? Exactly that. Yeah, but you've got no dependence at 20. At 20, if I broke my leg... Yeah, you started early. Yeah, that's true. But a lot of people don't have... At 20, I was in uni. So if I broke my leg, I'd still go to uni. Or I could still... I didn't go to uni anyway. I didn't go to very many lectures in my first year. But yeah, you would still go.

18:50And even if you don't have any dependence, you don't have a mortgage. Yeah, but if you lost your job, you fall into debt. And then that debt takes you years to go off. Yeah, but at the age of 20, your rent isn't the same as it is when you're 30s. Yeah, but it all scales, doesn't it? Your income's bigger at that point. What I'm saying is at 25, if you fall out of work for any reason, you know, you're - But 25 had a lot of disposable income. I mean, what are the stats in terms of the likelihood at those kinds of ages? Do you know? Yeah, so you do see claims between like the early teens to the late, sorry, late teens, late teens to mid twenties.

19:26There is, you know, because less people are taking it out at age. So it's like 1%, 1.7 % of people between 18 and 24 will make a claim. But how many people have actually got insurance in that? 1 % of people in that age group make a claim? 1.7, yeah. According to Liverpool, Victoria. That's high. 18 to 24. That's high because they're the people that have got cover. How many people in that age group haven't got cover that could have made a claim? Yeah, exactly. The youngest claim for Liverpool Victoria was 23. So there are people that are in their 20s, like 23, 24, I would say, that are making a claim.

20:01And then you're looking at that next age group, which is up to age 40. And about 30, I think it's about 35 % of the claims come from that age range. So from 24 to late 30s for Liverpool Victoria. So these are based on one insurance stats. What type of claims are they mainly? So about 60%, I would say 60 % of claims are coming from musculoskeletal and mental health. So it's like your back and your brain. Back and your brain, yeah. It's kind of, I don't think people even consider that you could be covered for mental health. Yeah, no, I don't either. You know, I don't think people know that depression and things are things that can be protected.

20:42Yeah. Wow. Yeah, I've dealt with depression claims. So we've seen, because we deal with the claims as well for clients. So I've still seen depression claims. I had someone claim for long COVID. So yeah, wouldn't expect that either. How do you prove your depression? How do you check if someone's depressed? So you would be seeing a mental health specialist. Yeah, you'd have to be. Yeah, you've seen a GP. Your GP will have referred you somewhere. You know, they will write to your GP. They will look at the information. Yeah. Yeah, I know. I read a report that was saying like one of the average claims for, it was something like open heart surgery was in the 40s or something like this.

21:24It was so young when I looked at it. I thought it was all like 70 year olds, you know, and it was like, no, actually, it's people in their 30s and 40s. You don't know what's going to happen to you, right? So nobody knows. It will be less likely to happen to you in your 30s and your 40s, but it's not saying it's impossible. You know, you hear about people having strokes in their 30s and you think, well, actually, if you have a stroke in your 30s, you're never working again. I think we all know someone that's had something tragic happen to them. Yeah. You know, and I think as you get older, that number just goes up and up and up, doesn't it?

21:53Yeah, definitely. To the point when you're probably in your 60s, you probably have lots of people or you yourself has had some sort of accident an illness or tragedy in your life. Yeah. We're one in four. Yeah, one in four. One in four. Where's the silver lining in this? Oh, I know. Yeah. If you get cancer, you get a payout, mate. You get big bucks. You're going to Vegas, David.

22:16Last time we recorded, Tamae, and you were having some real dramas with your accountant. So how's that been going, mate? They're sacked. So drama sorted. They're a big corporate firm. They didn't really reply to my emails very quickly, like took a week or two at times. And they charged me way too much. I mean, I've got pretty simple taxes and they were charging me thousands. They saved me some money, but yeah, I had to move on. Slow and expensive. Pretty much, yeah. This is one of the reasons that we're really happy to be partnering with TaxApp. It's a tech platform that makes self-assessment simple.

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23:17We've left a link in the description and use the code MONEY10 for 10 % off your first tax filing. That code is MONEY, M-O-N-E-Y 1-0. so mr carolet i hear you are a salesman elite salesman yes one of the best they say i've got a little bit of experience in the game yeah i could say you've done a few deals uh bill a bill what what would your compliance team say about you they will say that i am always nagging them and that um essentially i just have i have beef with compliance i love the team compliance slows down all my deals because every time i get to the finish line they've got to check documents kyc GDPR and it's just a nightmare it slows the deal down by like two three weeks it's always on both sides as well as sometimes it can be blocked on the other side exactly well that's where today's sponsor can help indeed Vanta helps companies of all sizes get secure and compliant fast and they stay that way they do it by automating compliance with over 35 security and privacy frameworks like SOC 2 ISO 27001 and HIPAA yeah all of them and this saves businesses so much time and money According to a recent IDC study, Vanta customers save over half a million dollars a year in costs.

24:27Not bad. And they also help you complete security questionnaires up to five times faster, which is great because everybody hates filling out forms. If you're a business that needs to prove security and compliance, visit Vanta.com forward slash making money to sign up for a completely free demo today. That's Vanta.com forward slash making money. There's a link in the description though, so you can just click that. So do you think there's any types of cover that are just a waste of money? Types of cover that I have. Or just in the market? You know, what we've got here, you're an expert and what the guests, sorry, what the listeners want is the insider knowledge of like the industry, because it is intimidating.

25:15It's full of jargon. And to be honest, most people, like with financial advisors, they think they're going to step into a room with someone and they're just going to be sold to. And they're going to walk away with a load of stuff they don't need. Is the kinds of cover that you think this is what everyone should have and this is stuff that most people should probably don't need to think about? I think the products we talk about are all needed. So we only really advise on, we do private medical, but in this space, we would say, you know, life insurance, critical illness and income protection. and I would say all of those products are needed so everyone that works not by everyone so I would say you know if you're a single person you don't have any dependents um you probably don't need life insurance right now you know you're not taking out life insurance for you know your children or your partner so that can probably wait I think income protection is always the one I leave with if you're working if you're working you know if you rely on your income then income protection would be the one that came first um critical illness is equally important in my eyes because it's making sure if something big smacks you in the face it's uh it's uh going to give you that lump sum that you need they're like me insurances life is a them insurance isn't it life is like a legacy thing like when you've got people to care about like that you think if i die are they going to be okay whereas critical illness and income protection is like how am i going to be okay and that's sort of even if you're single that's a concern right yes this whole convo's like spun my head because for like in the last 20 years i've got calls and like we want to sell you life insurance i'm like i'm fine don't worry about it i'm like i'm not gonna die i'm like young and fit and i literally i always have jokes i'm like i've got no kids i need life insurance i'm gonna go party like i'm fine but now i've got a kid no insurance apart from health insurance yeah do you think for me it'll be most like someone one kid um is it better to get life insurance first or do you think like critical illness and income protection first?

27:13Obviously, ideally all three. Get a job lot. Get them all. Get them all. You'll make a sale after this. You need all of those. Yeah. I mean, life insurance is important for your child, right? So you want to make sure that they're okay if something happens to you. So life insurance is key. But if you can't work, then you can't pay your bills. What about workplaces then? So are people getting certain levels of cover at work already that they might need to like check before they buy their own cover? Yeah, maybe. It could be that you're getting some cover-free work. You might get death in service.

27:49You might get some sort of... You might get what service? Okay. So death in service is like life insurance through work. Death in service. Death in service. Sounds like they're having the war or something. So with, if you're working for an employer, you probably get some form of life insurance. You ain't. Don't come knocking. You just had a pay rise, mate. You ain't getting nothing. Devo, sort me out. Devo's going to talk to you afterwards and sort me out with some nice life insurance. Yeah. So for some employees. Will's going to be sitting here next week and send a meal. Death in service. See you later.