Protection

The rumour that we all die is greatly exaggerated

• There is therefore no need for anyone to take out any form of personal protection plan.

• All hospitals are to be demolished as no-one gets ill.

That is patently a load of rubbish, so why don’t most people have adequate cover?

This is one of the few things in life that you buy hoping that it will never be needed. We all have our houses insured against fire, pay the premiums on time, but never regret the fact that the house hasn’t burnt down so we can claim on our policy. It is just the same with personal protection.

Businesses too need to protect their best and most valuable assets - their Key People, through Key Person insurance.

There are several areas, but we’ll detail just three.

Life Insurance

Cover can be to cover a specific debt, such as a mortgage, or for a specific time period, for example whilst you have young children who are dependent on you, or for the whole of your life so that Inheritance Tax may be mitigated.

Rates for Life Insurance have fallen in the last few years so if you have existing cover then it may be worth getting us to run a check for you to see if you can save some money.

Level Term Assurance

Provides a specific sum over a fixed period. At the end of the term there is nothing to come back and if you stop paying the premiums then the policy will lapse and you won’t have any cover. Expect to pay for for a smoker and more again if you are male, as statistically females live longer.

To avoid probate and or Inheritance Tax, consider a suitable Trust. Tesco sell this type of cover, but if you want to get Trust advice from the girl on the fruit and veg. aisle, then rather you than me. See a professional adviser (who will promise not to sell you bananas)

Convertible Term Assurance

Allows you to convert the policy into another type of insurance without further evidence of health

Decreasing Term Assurance

Basically as above, but the amount of death benefit starts high then reduces over time. Why? Because if you have a repayment mortgage then each month you repay some capital and so your debt reduces. Decreasing Term Assurance is most commonly used for these types of situation.

Family Income Benefit

The most useful form of cover in our view, and also the most undersold/underbought. What you decide is how much income your family might need and over what period e.g. £15,000 per annum for the next 18 years. If you die tomorrow, then your family will get £15,000 x 18 years. If you die in 9 years time, they get £15,000 x 9.

The benefit over Level Term Assurance is that if you have calculated the lump sum you need to provide a family income using an interest rate of, say 6% (which was the rate at the time) then to provide £15,000 a year meant you needed a lump sum of £250,000.

If interest rates have fallen to 4%, then your £250,000 will only provide £10,000 per annum

Whole of Life

Much changed, but generally only used to provide funds to cover Inheritance Tax liabilities. These were very popular some 10 years ago when “universal” plans promised high cover to young families which could gradually be converted to savings as they got older. With investment returns falling with inflation, the assumptions made to cross subsidise the life cover proved unrealistic and these plans are a very expensive way of providing cover. Better to have term assurance and a separate savings pot.

Critical Illness Cover

We are 6 times more likely to suffer a critical illness than to die before we retire. What is a critical illness? Definitions vary, but the Association of British Insurers publish “Core conditions” and most Critical Illness plans will cover these, some will cover many more. Examples include:-

• Blindness

• Cancer

• Coronary Artery By-Pass Surgery

• Heart Attack

• Kidney Failure

• Major Organ Transplantation (as a recipient)

• Multiple Sclerosis

• Stroke

There will be exclusions and you will normally have to survive 28 days before a claim is entertained.

The policies aim to pay a tax free lump sum so that, if you can’t return to work, you can settle you mortgage or still have a comfortable lifestyle. You may need money for alterations to the home after a stroke. You don’t even need to be disabled for any length of time and could receive the lump sum and recover sufficiently to go back to work again!

With breakthroughs in health care, many conditions that were once life threatening aren’t any longer, so earlier Critical Illness plans may have wider cover than newer ones, so be careful about replacing these, unlike life term policies. If in doubt, see an IFA.

Permanent Health Insurance (PHI) - also known as Income Protection

Whereas Critical Illness cover will pay out a lump sum on diagnosis of a specified disease, Permanent Health Insurance will pay a regular income until a defined date, which could be a date coinciding with retirement, for example.  PHI will cover against accident or illness that causes you to be unable to work.

The definition of work will vary from different providers, e.g. some will consider you unable to work if you can’t follow your current occupation, others will only consider the claim if you can’t undertake any type of work; the definition will also depend on your current occupation as well and how exclusive it may be.

Cover can be deferred for 1, 3, 6 or 12 months usually. The longer the deferment, the cheaper the premium. Why would you want a deferred period?  Assume your employer will pay you for 6 months at full pay, then only Statutory Sick Pay. There is no point in duplicating the period when you will be paid by the employer and in fact the provider would not allow this anyway, as generally you will not be able to insure for more than 50% of your earnings, plus statutory sick pay.

Smokers and high risk occupations will find that cover costs a lot more and some providers exclude certain occupations altogether. Some of the older “Friendly Society” plans disregard both smoking and occupations.

Women will find that cover is more expensive, the reverse of life cover, as statistically the have more time off work  through illness than males.

Mortgage Payment Protection Insurance  

This is a simple an temporary contract designed to pay the costs of your mortgage and associated bills, for a period up to, usually, 104 weeks.

Cover can be arranged for Accidents and Sickness, plus Unemployment cover, although the latter is pretty useless if you are self-employed.

There are plans available that can provide the Accident and Sickness covers without the Unemployment section if you are self-employed.

If you don’t have at least three months mortgage payments put by “just in case”, then you need this cover as you won’t get any help whatsoever over this period from the Dept. of Works and Pensions.

Cost is in the range of £4.50 to £5 per month for each £100 of benefit. Cheaper than re-possession by a mile.