A Guide to Protection

Most of us are aware that there are policies available that provide life insurance, protect us in the event of a critical illness, pay-out if we had an accident and were unable to work, and can protect our home and possessions. However, with so many different types of policy available in the market place it can be hard to know which one is right for your circumstances and offers the best value for money.

This guide is designed to help you understand some of the policies. We’ll explain a little about how the different types of cover work.

We all want to do the best for our families, and keep them properly protected – however, you want to be sure you have all basis covered in case the unexpected happens.

If you were to die, how much money would your family have to live on? Many families would find themselves running short of money very quickly. Your salary would stop, but the household bills would keep coming in. A pay-out from a policy could make the difference between your loved ones facing a financial struggle at a challenging and emotional period in their lives, and being able to maintain the sort of lifestyle they enjoyed when you were still around.

Life insurance is cover you take out for a set number of years. You agree the term of the policy at the outset, usually between 10 and 25 years. That’s why you’ll often find this type of policy referred to as term insurance. Most people tailor their policy to ensure that their financial commitments would be met in the event of their death, so policies are often aligned with the term of a mortgage or other loan. Banks and building societies usually require some form of life insurance as a condition of granting a mortgage.

There are many types of policy that can help take care in protecting and providing for the financial needs of you and your family in case your circumstances change drastically. Here are the main ones:

Mortgage payment protection policies are designed to cover the cost of your mortgage payments if you’re sick, have an accident or become unemployed and can’t work.  Generally, the policy will start paying out either 31 or 60 days after you are unable to work. Most policies will payout for a maximum of one year.  The amount payable under the policy is usually around £1,500 to £2,000 maximum per month. So, if you have a large mortgage, you will need to consider how you would cover any shortfall.

This type of policy pays a monthly income tax-free if you are unable to work due to an illness or injury. The monthly income under the policy will be between 50 and 70 per cent of your salary and will be paid until you are fit enough to return to work or reach retirement age.

Critical illness cover pays out a tax-free lump sum if you are diagnosed with a major illness, including cancer and heart disease. Actual illnesses covered in a policy may vary between providers. Many insurers will make a part payment on an early-stage diagnosis of a condition specified in the policy, the percentage will vary from company to company.

Many people buy a combined life and critical illness policy, and it makes sense to do so. In this case, a payment would be made on either diagnosis of a critical illness as defined in the policy, or death, whichever is the sooner. If the cover is combined in this way, the policy premium is usually cheaper than it would be for separate policies, as there is only ever one lump sum paid out by the insurance company.*

Family income benefit policies work in a similar way to ordinary life cover, but instead of a lump sum, the policy pays out a regular income if you die. A typical policy might be taken out by the parents of young children, so that if one parent were to die during the term of the policy, then an income would be paid out for a predetermined period of time. So, if you had a 20-year policy and were to die five years into it, then the policy would pay-out a regular income for the remaining 15 years.

Family income benefit insurance is a simple way to provide your family with an ongoing income rather than a lump sum if you were to die. Critical illness can also be added that would provide a pay-out if one of the parents were to be diagnosed with a serious illness.*

This policy provides cover so that if you are unable to work because you’re injured or sick, or through no fault of your own, you have lost your job. In the event of a claim, you will receive a predetermined percentage of your monthly income, usually for a period of up to 12 months. Payments are made after a waiting period of at least a month. If you choose a longer waiting period, your premiums are likely to be lower.

This cover differs from mortgage payment protection which is designed specifically to cover your repayments on a specific debt such as your mortgage. It differs from income protection insurance in that it includes unemployment cover.*

As you can see, there is a range of different insurance cover available design to protect you and your loved ones in from unforeseen events. We would always advise you to speak with a qualified insurance advisor such as ourselves when deciding which policy is right for you and your family.

Our advisors will take their time to talk through the policies and find out all about you and your life and circumstances. You will be required to disclose all information relevant to the policy you choose, but our advisor will talk you carefully through the process and help you fill out the forms, explaining everything you need to know in plain English. We can give you advice on the right protection cover for you and, if you decide to go ahead, arrange this for you giving you one less thing to worry about.