Insurance
Life Insurance
A policy that pays out a lump sum or income to dependants in the event of your death.
The loss of a spouse or parent can leave dependants with additional issues to cope with other than the emotional. If you are inadequately insured, your dependants may be left with a dramatically reduced household income, which could affect their quality of life. Potentially there may be reduced opportunities for children such as the ability to pay for a university education or difficulties in maintaining mortgage payments on a reduced income.
In the event of your death, a lending institution will not write off your debt. Rather, they will continue to pursue the debt through your dependants and could, ultimately, foreclose on the loan meaning the loss of the family home.
The main benefits the State may provide are the Widowed Parent's Allowance and Child Benefit. Depending on whether the widow(er) qualifies for Income Support, the State may or may not help with paying the mortgage interest.
The method for calculating which benefits an individual may qualify for is extremely complicated. More information is available at the Department of Work and Pensions website www.dss.gov.uk.
There are many different types of plan, designed to address different shortfalls, these include:
- Level Term Assurance - Pays out a set amount of money in the event of a successful claim. These are good for personal or family protection or to protect interest only mortgages
- Decreasing Term Assurance - Pays out a lump sum that decreases annually as the policy term progresses. These are good for repayment type mortgages
- Family Income Benefit - Pays a stepped benefit that can be received monthly or annually
Critical Illness
A policy that pays out a lump sum on diagnosis of a serious condition, such as heart disease or cancer.
Advances in medical science mean that more people are now surviving serious illness than in previous years. While this is good news, many people are faced with the realisation that they may not be able to return to work, or indeed, wish to.
Critical Illness is, in many ways, similar to Life Insurance with the difference being the insured is still alive.
Critical Illness plans are built around the most common serious conditions, such as:
- Cancer ¹
- Coronary artery by-pass surgery
- Heart Attack ²
- Kidney Failure
- Major Organ transplant
- Multiple Sclerosis
- Stroke
Some policies may include other illnesses such as Alzheimer's and Parkinson's disease. Or may include a list of less common conditions, such as blindness or coma.
Critical illness is often bought as an optional extra on a life insurance contract.
¹ Not all types of cancer are covered.
² Not all types of heart attacks are covered.
This section contains information about the different types of insurances.
Income Protection
A policy that provides a regular income if you are unable to work because of sickness or disability.
Many people make the mistake of thinking that should they fall ill, have an accident or lose the ability to work, the State will step in. Wrong - the rules governing sickness benefit claims have changed dramatically.
Income Protection should be considered if you would not be able to maintain your standard of living on State Benefits alone.
If your regular outgoings are normally met from income, then taking away that income can have drastic and wide ranging implications including inability to meet mortgage and loan payments, as well as basic household bills and living costs.
Plans are available for employees, self-employed people and even those who do not work but are responsible for managing a home.
Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income.
When taking a policy out you can normally set it up in a variety of ways - each will pay out in a different way and therefore has an effect on the monthly premium. The different criteria include:
- Occupation definition
- Deferred period
- Guaranteed or Reviewable premiums
- Increasing or level benefits
It is important to ensure you take out the policy that best suits your circumstances, not necessarily the one that provides the cheapest premium.
A policy that provides a tax-free monthly income if you are unable to work as a result of medium term sickness, incapacity or unemployment (normally 30 days or more).
This policy is similar to Permanent Health Insurance (PHI) with two main exceptions:
- Unemployment cover can be included
- The policy normally only pays out for a specific period (e.g. 1 or 2 years)
Building and Contents Insurance
A policy that in the event of any damage to your property, will give you a sum to cover the majority of the cost of repairs.
If you don't have this type of cover, you will be responsible for the cost of repairs. Cover generally includes:
- Damage caused by fire or flood
- Subsidence
- Storm damage
These are just a few of the perils covered. The policy can also be extended to protect your property against events like accidental damage.
Whilst building insurance will protect your actual property, it does not cover all the contents of your home. This type of cover will protect your furniture, soft furnishing, white goods and personal items.
Damage to your property can be costly to repair, especially with a major event such as a fire or storm damage.
All lenders will insist that you have this type of cover in place and it is actually a condition of your mortgage.
The cover provided can vary and most providers will offer additional protection, at a cost, for things like:
- Personal belongings including cash etc) inside and outside the home
- Individual items valued over a specific amount
- Freezer contents
These are just a few of the extras available. The basic contents cover may not provide all the cover you require and additional areas of cover can be purchased to suit your individual needs. Discounts may be available for those in a neighborhood watch scheme or for those with a burglar alarm etc.