Research shows that most parents have no contingency plan for coping financially if one partner is unable to work due to serious illness, writes Caroline Madden.

When it comes to material possessions, Irish consumers are perfectly happy to pay for peace of mind, insuring themselves against everything from cracked windscreens and lost luggage to stolen pets and damaged wedding dresses.

When it comes however to insuring what is possibly their most valuable asset - the ability to work - it's quite a different story.

According to the latest research published by Bank of Ireland Life, most parents have no contingency plan in place for coping financially should one partner become seriously ill and therefore be unable to work.

Only one-third of parents were found to have critical illness cover, an insurance product that pays out a tax-free lump sum if the person is diagnosed with a condition listed in their policy.

Those who hadn't taken out any such cover said either that they couldn't afford it or just hadn't got around to it, even though 90 per cent of parents had already managed to organise holiday insurance this year.

In reality, says Kevin Manning, head of marketing at Bank of Ireland Life, the consequences of denting your car or losing your luggage on holiday are significantly less than the impact if one parent could not continue to work in paid employment or work in the home due to a serious illness, such as cancer or heart attack.

Many parents surveyed said that they would cash in their savings and investments if either of them couldn't work due to serious illness, or that the healthy partner would have to work two jobs.

Others said that they would downsize the family home.

Worryingly, more than 40 per cent of single parents surveyed felt that State benefits would tide them over if they were unable to work, but with social welfare currently at €185 a week, they might struggle to make ends meet.

According to a report released by the Society of Actuaries this week, cancer and heart disease are now the most common causes of critical illness for both men and women, accounting for 75 per cent of all claims.

Surprisingly, women are 15 per cent more likely than men to suffer a serious illness in their 20s and 30s, although this trend reverses once they reach their 40s, with men making 25 per cent more claims at this stage.

It is worrying to see how relatively young many of our female incidents of critical illness claims were in the last year compared to previous years, Mr Manning says. The good news is that, as medical techniques advance, more and more people are surviving serious illnesses.

However, for some, returning to work is not always an option. This is where critical illness insurance can really play its part, helping to ease the financial burden on families.

Mr Manning believes that one of the biggest reasons for low take-up of critical illness insurance among parents is confusion between this product and income protection insurance.

Also known as permanent health insurance, income protection provides an alternative source of income if the insured person is out of work due to any illness, disability or accident, up to retirement age, if necessary.

Both products have a place in the market, he continues. It really depends on whether a large lump sum payout and/or an ongoing percentage of your regular income will suit your needs better.

John Geraghty, chief executive of LABrokers, warns that this whole area is a minefield, and advises how best to select the protection products best suited to an individual's needs.

In terms of priority, the first is life assurance; the second, particularly if someone is self-employed, is permanent health insurance; and the third is serious illness cover.

PAYE employees typically have more of safety net than the self-employed, as employers often provide a form of ill-health insurance for them under their company pension scheme and they will generally have paid sick-leave entitlements.

Self-employed people may not even be entitled to State benefits, which can leave them in a perilous situation should they fall ill, and for this reason additional protection is very highly recommended.

For those considering critical illness cover, Mr Geraghty warns that it is very difficult to do a like-for-like comparison of products available on the market, as cost isn't the only factor.

The policy should also be examined with a fine-tooth comb to ensure the person understands exactly what illnesses are covered.

The main thing that people have to realise is that their interpretation of serious illness may not be the same as what their policy's definition of what a serious illness is, he says.

The extreme severity of some of the illness covered in policy definitions can make a claim almost impossible.

Many of the illnesses are so severe that the person dies from the condition and, given that claimants have to live for 14 days after diagnosis of the illness for it to be a valid claim, in certain circumstances a cheaper life assurance policy may be more beneficial.

Nevertheless, if a claim is successfully made under a critical illness plan, Mr Geraghty says that the lump sum can go a long towards reducing the person's stress by eliminating their debt.

In addition, if the person has become disabled, the lump sum may be needed to adapt the house and car to their new lifestyle.

Tony Nugent of REA Mortgage Choice has found that income protection policies are becoming more popular than critical illness cover.

Premiums are often cheaper, he says, and tax relief is allowable on income protection contributions at the person's marginal rate of tax.

"In my opinion, it [ income protection] is usually far better value for money," he says. "However, you've got to be very, very wary of health issues in the background because, where you might get serious illness cover on certain types of illnesses, you may not get it on income protection.

"Back problems, for example, would mean an automatic exclusion from income protection."

Certain occupations - such as jockey, firefighter, fisherman, labourers and quarry worker - will also mean that an applicant is turned down point blank and therefore might have to go down the critical illness route instead.

The one major difference is that serious illness [ cover] usually has an average of up to 32 extremely specific illnesses, whereas income protection covers anything as certified by your own general practitioner, including stress, he adds.

In fact, statistics provided by REA show that 55 per cent of current income protection policy claims would not have been covered by a critical illness policy.

Nevertheless, Mr Nugent advises that self-employed people should take out both types of cover (in addition to life cover) if they can afford to, in order to protect their income and to have additional money to cover bills which quickly mount when a person is seriously ill.