Insurance and Protection Services
Taking out a mortgage is most likely the biggest financial commitment most people make in their lives. Sometimes, life doesn’t go to plan and that’s when it’s vital to have the right insurance and protection in place.
Life insurance and protection policies can give you the peace of mind you need to enjoy your home knowing you’ll be covered should the worst happen.
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What types of protection insurance is there?
Protection insurance usually pays out a claim based on three main factors, death, critical illness or being off work due to accident or sickness.
Life insurance policies provide lump sum payout or an ongoing pay out, to the policy beneficiary which would usually be a partner or other person over the age of 18 living in your home, such as adult children.
Critical illness can do the same as above but would pay out if you are diagnosed with a critical illness like cancer, heart attack or a stroke.
Income protection is a type of insurance policy that will provide a monthly income if you are unable to work due to injury or illness.
What is income protection?
Income protection insurance typically covers a certain percentage of your income, in the event that if you are no longer able to bring in a monthly income sufficient to cover your outgoings due to illness or injury, it will provide enough to cover your essentials.
Each policy is different and tailored to your needs, so you may be able to get coverage for accident, sickness, and unemployment, whereas some policies will only cover illness or injury.
You can also often choose to have a lump sum payment, or to receive a monthly benefit amount on an ongoing basis.
Typically income protection insurance offers a plan that will continue to pay out a monthly benefit to cover your lost earnings for so long as you are unable to return to work. This could be until the end date of the policy or to your normal retirement age.
Who needs protection policies?
When should I get life insurance?
Life insurance should be taken out at the same time as the mortgage for maximum protection against death, accident, or sickness that occurs during the lifetime of the mortgage or up to retirement age.
What type of policy do I need?
The type of insurance policy you need depends on your personal circumstances, if you speak to an adviser then they will review your situation and recommend the right type of protection package.
Decreasing Term Assurance
Decreasing term assurance cover is an insurance policy that will pay out on the death of the policyholder during the lifetime of the mortgage. As the name suggests, the amount of cover gradually decreases over the policy term in line with the outstanding balance on the mortgage. These policies are therefore usually less expensive than whole-of-life insurance.
Level Term Assurance
You can receive a lump sum payment that stays the same throughout the policy term which would be designed to pay off the outstanding mortgage and perhaps provide money for university fees or other future expenses. This would cover the lost income of the person who passed away, over their working life.
Relevant Life Assurance
If you are a limited company director, you can take out relevant life assurance to protect against the death of key people in your business including yourself. The premiums are treated as a business expense and the policy will pay out a lump sum on the death of you or a covered employee. This policy is useful for smaller businesses that are unable to set up a group life scheme. The lump sum will be tax-free to the beneficiary.
Family Income Benefit
Family income benefit is similar to level term assurance except that rather than paying out a lump sum, the policy pays out a monthly income designed to replace the income of the policyholder. These policies are great as they will replace the income of the person who has passed away, and will mean the family can continue the same lifestyle they have become accustom to.
Critical Illness Cover
Critical illness cover is a policy that will protect you and your family if you have a serious health event. If you experience critical health problems such as cancer or a heart attack, the policy will usually pay out a lump sum which could be used to repay your mortgage, cover lost income, or one-off alterations to the home. It could even cover private health care if required.
If you have long-term illness such as back-related injuries, you may get some sick pay from your employer, but when that ends you’ll need another safety net to protect your income so you don’t have to dip into your savings. If the illness is not critical then this would likely not be covered and you would need to look at a policy like Income Protection for less critical illnesses or injuries.
With an income protection policy in place, you’ll receive payments to cover your mortgage repayments and other expenses such as council tax and bills. Income protection policies can be especially helpful for self-employed people who won’t get sick pay from an employer. Your policy may protect you from accidents and illnesses, that stop you from working.
The policy would usually pay out up to 60% of your income until you can return to work or the end of your policy, should you be unable to work again. The longer your deferred period before the policy pays out the lower the premiums will be but it is possible to get a policy that pays out from as little as a week following your illness or injury.
Simmonds Mortgages brings you peace of mind with mortgage protection insurance
For a mortgage and personal protection quote, give us a call on 0118 469 3037. Get an experienced mortgage adviser to help you find the right cover for your needs.
Life Insurance and Protection FAQs
How much does life insurance cost?
Your policy premiums will depend on a range of factors including:
- The amount of monthly cover you require.
- The waiting period. This is how long you are prepared to wait before the policy pays out. If your employer pays more than statutory sick pay you may be able to defer when you receive payment which can reduce your premium
- The policy term.
- Pre-existing medical conditions
- The type of job you do - a desk-based job is lower risk than farming, for example.
When should I claim on my insurance policy?
You can claim on your policy if you are unable to work and the reason is listed as one accepted by the insurance provider. Different providers set different criteria for claiming so read the small print very carefully. Also, be clear about the deferred period on your policy as you won't be able to claim until that time has passed.
Do I need both life insurance and critical illness cover?
Having life insurance in place is not a pre-requisite for taking out a mortgage, although many mortgage providers will recommend that borrowers have a policy in place.
Life insurance can also be useful for renters whose families could struggle to cope financially. Your life insurance may be a term policy which means it pays out a set amount lump sum throughout the life of the policy, often 25-30 years.
A decreasing term policy will pay out a reduced amount over the life of the mortgage which will be enough to cover the cost of your mortgage. Critical illness can be a lifesaver if you are diagnosed with a serious condition that prevents you from working.
Cancer and other serious illness can put a huge strain on your finances so a critical illness policy means one less thing to worry about while you focus on getting better. You can choose to have both life insurance and critical illness cover if you wish.
Do I need both critical illness cover and income protection insurance?
You don't have to take both types of policy but if you are unable to work due to a non-life-threatening illness or condition such as a bad back, you would not be able to claim on a critical illness policy. Income protection insurance will payout if you are unable to perform your usual occupation. In some cases, your policy may not payout if you are able to perform a similar role, so check the small print carefully to understand the terms and conditions of cover.