Mortgage Insurance and Personal Insurance advice for you and your family

Bad luck! You’re dead so any impact will be on your family rather than you. This point alone causes some people to disregard life insurance as it is the only insurance policy that is guaranteed never to benefit the person insured. However you must seriously consider how your family will survive at a time when they do not need to be further upset with the possible onset of poverty. Would you really want them to have to move home, leave the school they are at, get another job?

Pays out a lump sum or monthly amount to the dependants if the holder dies while the insurance policy is in force. The majority of plans will pay out following diagnosis of a terminal illness if for example you have less than 12 months to live.

As well as ensuring that your mortgage is covered you should make sure that your family have sufficient money to maintain their current lifestyle. On average a child costs £6,500 per annum and the value of a ‘house person’ is calculated to be £25,170!

One in four men and one in five women will develop one of the conditions covered by a standard critical illness insurance policy before their 65th birthday (source: Hanover Re 1998). On average 284,560 people develop cancer each year (source Cancer Research UK 2004). 268,000 heart attacks occur each year (source: British Heart Foundation 2004). 130,000 people a year suffer a stroke for the first time (source: the Stroke Association).

Frightening statistics, it could happen to you, me or any one. No body is immune to these illnesses. Sure we can eat healthy, exercise regularly, not smoke and reduce the chances but none of us can be sure that "it won't happen to me". Insurance certainly won't reduce the chances but it can reduce the harm caused.

Critical Illness insurance - pays out a lump sum or monthly amount on the diagnosis of a specified serious condition, such as heart disease or cancer. The majority of insurance policies also provide for a pay out if your child suffers from a critical illness. The amount of insurance cover varies although is usually around £15,000. The problem with critical illnesses is that it is difficult to picture how the illness may effect you or your family. When you die you're dead but with a critical illness maybe you will be able to return to work, maybe you need to move, or possibly you may get a degenerative illness that means you never work again and require permanent and long term care. People often overlook this area because they believe they would be okay, but think of people you know who have developed serious illnesses, would an insurance policy have helped them? Ideally you should ensure that you cover any outstanding debts and also a years salary, although critical illness insurance can be quite expensive and sometimes people elect to have full life insurance cover and only part of their debts covered.

Although long term events are most likely to really cause problems, many people can suffer significantly from short term illness. You must ask yourself the question “what would happen if I was unable to work”. Make sure you consider how long your employer would continue to pay you for and what would happen if you were still not back at work after that date. Basic sick pay and incapacity benefit is only £66.15 per week. If you earn £34,000 a year this is only 10% of your current gross income!

So if your employer won’t pay you, and you don’t think the state would pay enough then you’ll have to look elsewhere. Do you have enough savings to cover you (is that what you were saving for), will a family member pay you (should you expect them to) are also questions you should consider.

If you feel that short term illness would not affect your standard of living and ability to pay your loans etc then great you probably don’t require protection, if not you should certainly consider this area.

Accident and Sickness Insurance – Provides a short term regular income of up to two years if you are unable to work due to accident or sickness.

If you are made redundant through no fault of your own then it is possible to receive a monthly income for a period of time (up to 2 years) until you find employment. This is a short term insurance and will stop paying after you get a new job or the pay out term expires.

When looking at unemployment insurance you have to be really honest with yourself. How long would it take you to get a another job if you were made redundant? Would you need to re-train? If you feel that it could take some time and you would struggle to maintain mortgage and other payments during that time then you really must consider unemployment insurance cover.

Life and Critical Illness insurance policies are available with either decreasing, level or increasing cover.

• Decreasing – the amount of cover decreases each year. These insurance policies are usually used to protect repayment mortgages where the debt decreases over the term.
• Level – the amount of cover remains the same over the term of the insurance policy.
• Increasing – the amount of cover increases each year, usually in line with the average earnings index.

Life, Critical Illness and Income Protection plan insurance premiums are often available on the following basis:

• Guaranteed – the insurance premium will never increase during the term of the policy.
• Reviewable – the insurance premium will be reviewed and may increased depending on the review. Usually plans will be reviewed every 5 years, throughout the plan and more regularly in the final years.
• Annually Reviewable – the insurance premium will be reviewed annually and will increase each year. These plans are cheaper in the early years but may work out significantly more expensive over the term of the insurance policy.

Life insurance policies may pay as either a lump sum or monthly amount. For example it may be preferential for a family protection plan to pay a monthly amount until the children are old enough to look after themselves rather than a lump sum. This can often work out more cost effective as the amount the provider will pay decreases as the policy term reduces.

Many other features may be available. These are briefly outlined below:

• Guaranteed Insurability – At the end of the initial insurance policy term the provider guarantees they will renew the plan on standard terms.
• Buy-back – Some critical illness insurance plans may allow for buy-back. Basically this means that following a critical illness pay out the provider will allow you to continue benefiting from cover, for the main critical illnesses, at a reduced premium and for up to 50% of the original sum assured.
• Waiver of Premium – If you become ill and unable to work, the insurance premiums on your plan will be paid for you after you have been off work for a specified period of time (usually either 3,6, or 12 months).