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INSURING YOU AND YOUR HOME
It is your responsibility to ensure that all necessary forms of insurance relating to you and your home are in place. As well as Buildings and Contents it is advisable to insure against events that could affect your ability to meet your mortgage payments. It is important that you consider insurance cover such as Mortgage Protection Plans. These cover loss of income due to accident, sickness and unemployment. They can usually be covered collectively or individually and are also known as ASU (Accident, Sickness and Unemployment) policies. You should also consider the consequences of premature death and critical illness, on yours and your family’s ability to meet mortgage and other financial commitments. Important Notes
Why do I need it?
Insurance pays out when an unpredictable event causes a loss. You need insurance whenever: • the law says you must have it - for example, if you drive a car, you must be insured; • an event could happen to you and you would not be able to afford the loss - for example, if a tile fell from your house and injured someone who then claimed thousands of £s for their lost earnings; • if an event happened, people who are dependent on you could not bear the loss - for example, if you died and your children needed the financial support you had previously given. In some cases, the state provides insurance by, for example, paying incapacity benefit if you can't work due to illness, or bereavement benefits to a widowed husband or wife. But state benefits are low and you usually have to pass a number of tests before qualifying for them. Often a scheme at work provides life insurance - check the cover is enough for your needs. A scheme at work might also provide some health insurance, such as income protection insurance or private medical insurance.
WHAT TYPES OF INSURANCE ARE THERE?
You can protect yourself against unpredictable risks by taking out insurance. There is almost no limit to the risks you can insure against, but the most common types of insurance are listed below. • GENERAL INSURANCE (For example car insurance, home insurance, travel insurance, private medical insurance, accident insurance and sickness insurance) • LIFE INSURANCE (For example whole of life insurance, with profit bonds, unit linked bonds, income and growth bonds, endowment policies, maximum investment plans or any other life insurance, which builds up a cash-in value.) • TERM INSURANCE (For example lump sum term insurance including mortgage protection policies and family income benefit.) For the purpose of protecting your home and mortgage the following are the insurances that you should give serious consideration to:
GENERAL INSURANCE
Buildings Insurance Contents Insurance Accident, Suckness etc.. What to Check Costs Flexibility Risk BUILDINGS INSURANCE House buildings insurance • Pays the cost of repairing or rebuilding your home if it is damaged by unforeseen events (as detailed in the insurance policy) Top CONTENTS INSURANCE House contents insurance • Covers the cost of replacing possessions lost or damaged due to unforeseen events (as detailed in the insurance policy) Top ACCIDENT, SICKNESS, UNEMPLOYMENT, INCOME PROTECTION AND CRITICAL ILLNESS INSURANCE Accident, sickness and unemployment (ASU) insurance • Pays out a regular amount for a limited time - a year, say - if you can't work for health reasons or redundancy Mortgage payment protection insurance • ASU insurance used to cover your mortgage payments Sickness insurance • Pays out a regular amount for a limited time - a year, say - if you can't work for health reasons or redundancy Accident insurance • Pays out a regular amount for a limited time - a year, say - if you can't work for health reasons or redundancy Income protection insurance (also called permanent health insurance) • Replaces part of your income if you can't work because of long-term illness or disability • Often this is a type of general insurance but, if it builds up a cash-in value, it is based on an investment-type life insurance policy Critical illness cover • Pays out if you are diagnosed with a life-threatening condition, such as cancer or heart attack This Insurance pays out to cover loss of earnings in the event of accident, sickness or unemployment, either for all of these unforeseen circumstances, individually or any combination of them. It is a requirement that both Intermediaries and Lenders give customers information about MPPI. This is in response to the Government's wishes that an improved safety net is put in place following the review of Income Support for Mortgage Interest (ISMI). The result of the review is that this benefit will not be paid until after 39 weeks (9 months) from when the claim is made, for loans taken out after 1st October 1995. Due to the way the payments are calculated (according to a "standard interest rate" set by the Government) the actual rate being paid by you may be greater. It is important to note that eligibility for this benefit is assessed by the Benefits Agency Adjudicators. DSS estimates that only about 20% of claimants qualify for ISMI. It should not, therefore, be assumed that qualification is assured. Equally it is important to get advice to ensure that your own circumstances meet the criteria for benefiting from these policies in the event of a claim. As well as looking at any existing arrangements with employers or other policies that may have been taken out already and to assess any savings that could be used to tide you over a prolonged period of reduced or zero income. You may like to obtain a copy of the leaflet "Take Cover For a Rainy Day". If you would like a copy please ask. The leaflet incorporates a message from the Government, which includes the following: "The Government is concerned to ensure that you fully understand your mortgage responsibilities and that you can continue to pay your mortgage if you suddenly find yourself in unforeseen difficulties. If you do not have the means to support your mortgage payments if you were to lose your income, the Government urges you to think seriously about whether you need to take out Mortgage Payment Protection Insurance". Top WHAT TO CHECK OUT DOES IT MEET YOUR NEEDS? • What risks, items and events are covered? • How much will be paid out if you claim (for example, the full cost of replacing the item, its second-hand value, no more than a set cash sum, and so on)? • What's not included - for example, claims due to health problems you already have, possessions not under lock and key, a home left empty? • Are there any special features you want to be included? • Note any 'excesses' (the first so many £s of a claim that you must pay yourself)? Often agreeing to pay a larger 'excess' means you pay a lower premium. Top COST • Compare premiums for a year (or shorter period if relevant). • Premiums may vary with; where you live, your job, your car, the size of loan to be protected, and so on - make sure premiums are all quoted on the same basis. • Is insurance premium tax (IPT) included? • is there a saving if you pay by direct debit? Do you pay extra if you pay monthly rather than yearly? Top YOUR COMMITMENT • How much must you pay? • Do you pay monthly or yearly? Top FLEXIBILITY • Does cover stop immediately if you miss a payment or is there a period of grace? • Do you get some of your money back if you cancel the policy? • Do you lose some cover - for existing health problems, say - if you switch to another insurer? Top RETURN • Not applicable Top RISK • If you buy insurance over the Internet, it may be less easy than other methods to find out where the insurer is based. If things go wrong you may not be so well protected with an insurer outside the UK. • If you are not honest with the insurer, your policy may be declared void and your claims refused. Top REVIEW • Review when you renew to check it's still good value. Top
LIFE INSURANCE
Investment Life insurance What to Check Costs Flexibility Risk There are two types of life insurance investment-type and term insurance. INVESTMENT TYPE LIFE INSURANCE Investment-type life insurance pays out if you die and if you don't (with the exception of whole life insurance) - and may sound ideal. But investment-type policies cost a lot more than protection-only insurance. Usually, it's best to keep your insurance and investment needs separate. If you want investments, consider the full range of products (not just life insurance), which might meet your circumstances and needs. These are all investment-type life insurance: • Whole-of-life insurance • With-profits bonds • Unit-linked bonds • Income and growth bonds • Endowment policies • Maximum investment plans • Other life insurance which builds up a cash-in value (To find out more about a specific investment type product, please see the investments section of the FSA Consumer Website.) Top WHAT TO CHECK OUT DOES IT MEET YOUR NEEDS? • Do you want income, growth or both from your investment (i.e. the focus is investment, not insurance)? • For how long are you prepared to invest? Will you need to get at your money early? • Part of your premiums pay for life cover - do you need this? If not, other investments might give you a better return. If you do, check whether separately buying term insurance plus other investments would be a better deal. Top COST • How much must you pay in total over the life of the policy? • How are the charges taken? • Research shows that charges are one of the most important factors to check out. • The Key Features document (soon to be replaced with Key Facts) tells you about charges. Top YOUR COMMITMENT • How much must you pay, when and how often? • If the policy requires regular payments, can you stop and start them without stopping the policy? • Can you vary the amount you pay? Top FLEXIBILITY • Can you vary the amount you pay and even stop premiums for a while? • Can you transfer your policy to another provider? • What charges are deducted if you stop the plan early or transfer it to another provider? Top RETURN • Does the provider pay tax on the investments underlying the policy? (If so, bear in mind you can't reclaim this tax). • Check if you will have to pay tax on amounts the policy pays out. • Given your personal tax position, is this a suitable policy? WARNING Do not rely on past investment performance Top RISK • Can you choose how your money is invested? • Some investment funds are riskier than others. Is there a fund matching the level of risk you are happy to take? • Can you alter the way your money is invested during the lifetime of the policy? Is there a charge for doing this? • If you choose a with-profits policy, are you happy with the financial strength of the company? • If you are drawing an income from the policy, how likely are you to get your capital back in full? Top REVIEW If you are using the policy to meet a specific savings target - for example, to pay off your mortgage or pay school fees - check regularly that your savings are on track and, if necessary, you may need to think about increasing the amount you save. OTHER WARNING: Check what charges are deducted if you stop the plan early or transfer it to another provider. Make sure you understand how a with-profits policy works before you invest. Additional information to be aware of specific to with-profits bonds. Top
TERM INSURANCE
Types of Term Insurance What to Check Costs Flexibility Risk If your main concern is protecting your family or other dependants, term insurance is often the cheapest way to buy all the cover you need. Term insurance pays out if you die within a set period of time (the 'term'). If you survive the term, it pays out nothing. You might set the term at, say, the number of years until your children are financially independent, or the number of years remaining on your mortgage. It is not an investment, however, it is a low cost form of life insurance. Types of term insurance: Lump sum term insurance (including mortgage protection policies) • These are term insurance (also called protection-only life insurance) for a fixed term ie 10, 15, 20 years etc and only payable if the event (ie death) occurs within that time Family income benefit • Family Income Benefit (FIB) pays a monthly income to the beneficiaries in the event of death of the person/s who are insured Top WHAT TO CHECK OUT DOES IT MEET YOUR NEEDS? • Can you get the amount of cover you need? There may be a maximum or minimum. • What type of policy do you want? For example, family income benefit (a policy which pays out income rather than a lump sum), increasing policy (where cover and premium rise over the years), renewable policies (which let you extend the original term). • Check for exclusions - in other words, when the policy won't pay out. For example, most do not cover death due to alcohol or drug abuse. You might not be covered while taking part in risky sports. If your health is poor when the policy starts, some causes of death might be excluded or you might be refused cover altogether. Top COST • Typically, tables show the monthly premium for, say, £100,000 of cover for a man or woman of a given age for various terms (from, say, ten to 30 years). Find the best premiums for the example which most closely matches you. • Smokers usually pay more than non-smokers. The premium may be higher if your health is poor, or you take part in risky activities. • The premium may be higher or cover refused altogether if your lifestyle puts you at added risk of contracting HIV/AIDS. • Premiums shown are usually fixed for the whole term. • You get tax relief on premiums if you take out life cover through a personal pension or a stakeholder pension. However the life insurance element will be taken as part of the maximum you can pay into your personal pension. Top YOUR COMMITMENT • How much must you pay? • Do you pay monthly or yearly? Top FLEXIBILITY • Does cover stop immediately if you miss a payment or is there a period of grace? • Can you reduce or increase cover easily as your circumstances change? Are there extra charges for doing this? Top RETURN • Not applicable. Top RISK By paying extra, you can usually include 'waiver of premium'. It pays the premiums if you can't work because of a long-term illness. Top
IMPORTANT NOTES
FEE DISCLOSURE It should also be noted that it is usual for the insurance companies, who underwrite the policies recommended to you, to pay a fee to the Adviser. This is in recognition of the expertise, time, marketing expenses and administration in initiating the policy for you. COMPULSORY INSURANCE Some Lenders mortgage offers may contain a condition that you take out insurances such as Buildings, Contents, Accident, Sickness and Redundancy. They may also insist that you take out with them. Please refer to your Mortgage offer to check this and that if it is a condition, it is acceptable to you. CONFIDENTIALITY We will treat all your personal information as private and confidential (even when you are no longer a customer), except where disclosure is made at your request or with your consent in relation to arranging your mortgage. You have a right of access under the Data Protection Act 1998 to your personal records held on our computers and files. COMPLAINTS We have internal procedures for handling complaints fairly and speedily and we will tell you what these are. These will include establishing a set time for an initial acknowledgement to your complaint. We will tell you how long it might take us to respond more fully. If you wish to make a complaint, we will tell you how to do so and what to do if you are not happy about the outcome. We will help you with any queries. FSA USEFUL GUIDES The Financial Services Authority publishes useful guides on choosing a mortgage. These are available free through its web site: www.fsa.gov.uk/consumer, or by calling 0845 606 1234. The website also provides Comparative Tables to help you shop around. Top
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** IMPORTANT NOTES **
Authorised & Regulated by The Financial Services Authority. A Buy to Let Mortgage is not regulated by The Financial Services Authority unless the tenant is a member of the borrower's immediate family, or borrower intends to occupy the property as some stage. Written quotations are available on request. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. |
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©2007 Utopia Business Group | Eclipse House Whisby Way Lincoln Lincolnshire LN6 3LQ
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