November 17th, 2010
What protection do you have? What protection should you have?
We are living in unpredictable times, job security is a luxury and redundancies are again becoming more common.
Your home is probably your biggest asset and the centre of everything you and your family do so it is important that you do not risk losing it. The risks come in different guises, the physical property and its contents being damaged or destroyed to your inability to keep up payments on the mortgage due to death, illness or unemployment.
Insurance providers have a variety of products that cover most eventualities, offered with varying terms, prices and benefits.
Key products that you should consider are detailed below;
Mortgage Payment Protection Insurance
Mortgage Payment Protection Insurance (MPPI) promises to make repayments on your mortgage (and other related expenditure like buildings insurance), in the event of accident, sickness or unemployment stopping your income.
MPPI policies offer varying terms of cover and can often be tailored to meet your requirements. For instance to make the premium cheaper it is possible to delay benefits on the policy from 30 days to 180 days before a claim can be made. This reduces the risk to the provider and reduces your premium whilst covering you only for the most serious of claims.
For many MPPI is a must and can provide valuable cover. However it is not always the best solution and advice should be sort before purchasing.
Life Insurance
None of us would deliberately want to leave our dependants with the threat of losing their home or the pressure of dealing with financial problems in the event of our death. The loss in itself is surely bad enough without the financial repercussions.
Life issurance in itself is relatively cheap depending on the age and health of the insured. Life assurance can come in various forms, from a lump sum that could pay off the mortgage to a monthly income to pay the mortgage and other monthly payments. Often critical illness cover can also be included in this cover.
There are different types of Life Insurance of which the most popular are:
• Level term assurance |
This type of policy pays out a sum lump of money if the policyholder should die during the policy’s term. The sum assured is guaranteed and remains unchanged throughout the term. |
• Decreasing term life assurance |
This type of policy pays out a lump sum that is designed to decrease in line with the reducing balance of a repayment mortgage. It is regularly used to protect capital and interest repayments on a mortgage. |
• Renewable term insurance |
On the expiry date of this type of policy there is an option to continue without a health review. |
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• Family Income Benefit |
This type of policy pays out a monthly sum for a fixed period after the death of the insured. |
Critical Illness Cover
A serious illness, such as cancer or heart attack, could affect you before your retirement age and critical illness cover is designed to ease the financial pressures by paying a tax-free lump sum if you become seriously ill or totally disabled.
Critical illness insurance pays benefits on the diagnosis of certain specified critical illnesses. The range of diseases covered has increased to more than 30, though contracts differ from one company to another.
All policies should cover seven core conditions. These are cancer, coronary artery bypass, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. They will also pay out if a policyholder becomes permanently disabled as a result of injury or illness.
For a single person with no dependants, critical illness cover that pays off the mortgage is more important than having life cover, as it means you have fewer bills or a lump sum to play with if you are very unwell.
Buildings and Contents
People often use the terms "home insurance" or "household insurance" in a general way to refer to insurance that covers any aspect of their home and belongings. However, these policies are usually split into separate sections – "buildings" and "contents" – and not all policyholders will be covered under both sections. It is also possible to buy a "contents-only" or a "buildings-only" policy.
While many homeowners buy both types of cover, some have only one. There may be a very good reason for this. Typically, for example, people who live in blocks of flats will only need to buy a policy to cover their contents. This is because the landlord will be responsible for arranging buildings insurance to cover the entire block. And some policyholders obtain contents insurance from one insurer and buildings insurance from another, because this may work out cheaper than insuring both contents and buildings together.
Advice
We recommend you always take advice when considering the purchase of protection products. Modern products can be complicated and are not ‘one size fits all’. Your personal circumstances as a whole should be considered before making a decision.
For more information please visit www.checkmyinsurance.co.uk or to speak to a qualified protection adviser please click on the ‘Speak to an Adviser’ button below.