Why Life Assurance?
Your mortgage is the biggest financial commitment that your family will ever have. If the unthinkable were to happen to you, how would they cope with a large debt and a reduced income? Not a nice thought, we're sure you'll agree. Home.co.uk stress the vital importance of having life assurance to protect your mortgage. For a relatively small monthly premium your dependants won't have to worry about paying the mortgage, or even worse, losing the house at such a difficult time - giving you complete peace of mind.
Alternatively, please select a life assurance company from our directory of Life Assurance, Life Insurance and Mortgage Protection
But What Is Life Assurance?
Life Assurance is the simplest type of protection policy available.
It has a specific amount of cover, known as the Sum Assured, which is chosen to suit your own needs. You decide how long you need the protection for, known as the Term.
In the event of a claim during the Term the Life Assurance company will pay to you, or your beneficiaries (or dependants) the Sum Assured as a tax free lump sum. When you survive the term the policy ceases. There is never a surrender value at any time, so if you no longer require the cover you simply stop paying the premiums without any penalty.
What Cover Do You Need?
There are different types of Life Assurance and you may wish to discuss them with one of our advisers to help you decide which is most suitable for your needs.
The following is a simple look at of the various options that you may want to consider. Under certain circumstances we would also recommend that you consider the option of putting your policy under Trust, and are happy to offer advice to you as to the suitability in your own personal circumstances.
Option 1 - Mortgage Protection
This is specially designed to protect a normal repayment mortgage. The level of cover is set to match the original mortgage amount, and reduces over the years as you pay your mortgage. It is sometimes known as a decreasing term assurance policy and usually guarantees to pay off the outstanding Mortgage, assuming the mortgage interest rate payable does not exceed a certain rate. As the level of cover is always decreasing the policy premiums will be lower than an equivalent Level Term, but they will remain fixed throughout the term.
Important Note: If you have taken out a flexible style mortgage this policy may be unsuitable for your needs, please seek advice before finalising your policy.
Option 2 - Level Term
This is a Life assurance where the life cover is constant throughout the specified term.
For example a £50,000 level term policy taken over 10 years means that if you die within 10 years then £50,000 will be paid to your estate tax-free (although inheritance tax may need to addressed).
This type of policy is most suitable for protecting your family from financial difficulties in the event of your death. (see also Family Income Benefit)
It can also be used to protect an interest only mortgage, or where necessary, a flexible style mortgage. The premiums remain the same throughout the term. The benefits payable can also be index linked so that they rise with the percentage rate of inflation. If this option is chosen the premium would also increase by the same percentage.
In addition to the initial Death Benefits in the Term assurance policies you can also choose additional benefits within most of them. These additional benefits will increase the premiums accordingly. The most common of these is Critical Illness cover.
As the name suggests this cover provides for a lump sum payable on the diagnosis of a
serious illness or disability.
If you survive the diagnosis for more than 28 days you will receive the Sum assured as a tax free lump sum. The money is yours to keep even if you make a full recovery.
Some of the most common diseases covered are Cancer, Most types of Heart disease including heart attack, coronary artery bypass, angioplasty, and aorta surgery. Organ transplants are normally covered, as well as kidney failure, loss of sight or limbs, Alzheimer's disease, pre-senile dementia, coma, etc. Full details of the cover will be provided at the time of your application, as the cover varies slightly between companies. Many companies automatically include cover for your children against a limited number of Illnesses. This extra cover is provided Free of Charge.
Accident, Sickness, & Unemployment Payment Protection
It is all very well to protect yourself from the major catastrophes of life, but how would you pay the mortgage if you were off work for several months, perhaps through sickness or injury. Worse still you could find yourself made redundant unexpectedly, and you would, of course, still be expected to pay the mortgage.
Help is at hand, in the form of Accident, Sickness, & Unemployment Payment Protection policies. These pay a monthly income sufficient to cover your mortgage repayments and are a cost effective and simple solution for most people. However benefits are usually restricted to a specified level and are only payable for a maximum period, normally 12 months and sometimes 24 months.
Income Protection (also known as Permanent Health Insurance)
We can also provide you with replacement income when you are unable to work due to long term sickness or incapacity. The benefits allowable are governed by legislation but are usually around 50% of your income (as a maximum) before deductions. The benefits are paid tax free and are in addition to any incapacity benefits that you may receive.
In real terms you will be able to effectively replace most of your lost net income. Benefits are set at outset to be paid after any sick pay from your employer ceases, and continue for as long as necessary. The actual period before payments commence can range from 4 weeks to as long 2 years with lower premiums payable for the longer periods.
Premiums are level throughout the term and will vary dependant upon your actual occupation and level of income required. For example you may choose to take less than the maximum benefit, and some companies offer discounted rates in this event.
As with Term Assurances you can also chose to have benefits index linked to preserve their value in real terms. Please ask for details.
Family Income Benefit
A lesser known type of policy that addresses a specific need. Rather than paying a large lump sum to the family, that may result in unexpected difficulties, the policy pays a regular income for the remaining term of the policy. This makes the money more easily manageable and guarantees that the family are protected for a specified period. For example a policy that has been chosen for £10,000 per year with a 20 year term and the Life Assured dies in year 5 of the policy. This would pay £10,000 per year for the remaining 15 years. The premiums are lower than a similar Level Term Assurance as the amount payable upon a claim is reducing each year. The premiums remain level throughout the term. As with Level term assurance, you can select to have the benefits index linked, with a corresponding premium increase.
To get a quote please see our Life Insurance, Life Assurance and Mortgage Protection page
To learn more please read our Life Insurance and Mortgage Protection Guide
See also: Financial Services