Protecting your finances in the event of illness or accident can be complicated, especially for a climber. Not only have you to consider what type of protection you require but you also have to find a company which will cover you properly.
Get covered for your climbing.
Most insurance companies will simply exclude claims arising from a climbing incident. However, there are some who will cover climbers. Find one and thrash out the details of your climbing and of their policy with them.
These insurance companies will consider your climbing experience, how often you climb, what grade you climb to and various other criteria in order to offer terms. It is important that the underwriter fully understands the true extent of your climbing activities.
What type of cover do you need?
There are a number of suitable insurance products which will protect your finances but for long term planning consideration ought to be focussed on the following two types of protection policies:
- Critical Illness
- Income Protection
Critical Illness Cover is an insurance product, where the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurer's policy document, eg. Cancer, Heart Attack, Stroke, Traumatic Head Injury, Total Permanent Disablement.
If you have arranged a suitable policy this will cover you in the event of a major climbing accident.
Policies may be purchased by individuals either on Single Life basis, or on Joint Life basis, typically in conjunction with a life insurance policy at the time of a residential purchase or re-mortgage to repay the mortgage balance in full if the policyholder is diagnosed with a critical illness condition. Separate cover can also be arranged at any time for additional family protection.
Critical illness cover was originally designed and sold with the intention of providing financial protection to individuals following the diagnosis of an illness deemed 'critical' but not necessarily 'terminal'. The lump sum received from the policy could be used to:
- Pay for cost(s) of care and/or treatment
- Pay for recuperation aids
- To pay outstanding financial liabilities, typically a Mortgage
- Fund for a change in lifestyle
Whilst some like the assurance of having a lump sum on diagnosis of a Critical Illness, others deem it necessary to protect their income in case they are unable to continue working as a result of any illness or injury. This brings us on to Income Protection.
Income Protection would pay a regular income in the event of you being unable to work through ill health or accident. The benefit is limited to a proportion of usual income and is designed to pay for essential financial commitments such as mortgage repayments, car finance and household bills.
As with critical illness cover, a suitable policy will also cover you in the event of a major climbing accident.
Income Protection is designed to protect both employed and self employed people and provides a regular benefit normally of up to 60% of pre-tax earnings (or profits for self employed) to help maintain important items of expenditure if illness or injury prevents you from working and earning a living. In order to qualify for benefit, the policyholder must be totally unable to perform their own occupation as a result of illness or accidental injury, this definition is called own occupation. Other options are available where the policyholder must be unable to perform an occupation suitable to them given their education and training, this definition is called suited occupation.
Income Protection plans often do not pay the benefit immediately once the policyholder is incapacitated, as there is usually a deferred period. This is the period of time between when the policyholder is first off work due to illness or injury and the commencement of benefits. The longer the deferred period, the cheaper the premiums become.
Which option is best?
As you can see, both products are crucial in effective financial planning. Deciding on which product is relevant is subject to whether a lump sum payment is required on diagnosis of a Critical Illness, or whether replacing income using an Income Protection policy which provides a regular tax free income. Ideally both products should be considered as they are both designed to provide different benefits at the point of claim.
It is vital to ensure that your climbing activities are fully understood by the insurance company if you want to be covered whilst climbing.
By David Hallam, Director of Summit Financial Services Summit Financial Services