Personal insurance refers to insurance, which covers individuals and their family's expenses in case of their death. Personal insurance can also cover insurers' costs or losses during events such as accidents, loss of job, and critical illnesses.
Types of Personal Insurance
Life insurance covers the insurer's death and pays either a lump sum amount or monthly instalments to the dependents of the insurer.
Life insurance can be of two types:
- Whole-of-life, which is valid for the entire life as long as premium is being paid
- Fixed-term life insurance, which is valid only for a fixed term of say 10 or 15 years
As of 2012, out of the total households in the UK, 5.3 million or nearly 20% had whole life insurance and 0.5 million, or less than 2% had a fixed-term insurance cover. Households were paying a premium of £5 on average per month for life insurance, regardless of whether they had whole-of-life or fixed-term insurance.
LV= Life Insurance has whole-of-life insurance products for anyone in the age range of 17 to 69 years. Monthly premium starts from £5 and depends on factors like whether you smoke or not and the number of dependants. The maximum cover is £500,000.
Critical or serious illness insurance covers a lump sum payment if the insurer is diagnosed with a critical illness like heart attack, stroke, certain types or stages of cancer, among others. Critical insurance premiums depend on the insurer's age, medical history, and other factors related to life expectancy.
LV= Life Insurance offers critical insurance products that cover more than 64 diseases such as Alzheimer's disease, blindness, cardiac arrest, heart attack, kidney failure, and liver failure. These are fixed-term policies, so no claim can be made if the insurer does not suffer from any critical illness after the term. Premiums start from £5. The products also cover children's critical illness for up to £25,000 at no additional costs.
Income protection covers a percentage of take-home pay in case the insurer is not able to work for some time either because of an illness or disability. In some cases, income protection insurance may also cover involuntary unemployment. This type of insurance covers expenses like mortgage payments, utility bills, and credit card payments.
PaymentCare offers a short-term income protection cover. This product helps insurers manage their financial commitments for up to 12 months in case of an accident, sickness, disability, and involuntary unemployment. The maximum cover available is £1,000 or not more than 50% of monthly income.
Mortgage payment protection, or MPPI, only covers monthly mortgage payments of the insurer in case of an accident, illness or unemployment. In 2012, nearly 3.6 million households in the UK had mortgage protection. On average, households with MPPI were paying nearly £450 each year as a premium.
British Insurance has mortgage protection policies that cover up to £2,000 or 50% of monthly income. These are short-term policies and are valid only for a term of 12 months. The premium is £2.67 for every £100 of monthly benefit. So if you want a cover of £2,000 you will have to pay £53.4 as a monthly premium.
Personal Insurance as part of the household budget
As can be seen, personal insurance expenses for households can vary from £5 to £53 every month. You should decide the appropriate policy and cover depending on your financial obligations and the number of dependents.
Our household budget calculator can give you an idea of how much personal insurance is impacting your household expenses.