Decreasing Term Life Insurance (Mortgage Protection Insurance). This is life insurance that pays off your mortgage in the event of your death. It’s usually taken out at the same time as your mortgage, for the same amount you have borrowed and to match the length of the overall term on your mortgage (e.g. 25 years). The amount it pays out in the event of your death goes down over the years, in line with you mortgage debt. Most cover assumes you have a mortgage rate of around 5%. This accounts for rates rise in the future. (If you’ve had the insurance a long time, there is a chance you may have excess cover).
Critical Illness Insurance. This is insurance that pays out a lump sum if you were to have a serious illness or injury. Most insurers have an exact list of what illnesses or injuries are covered. If this happened to you, and you met the insurance policy criteria, the company would pay out a lump sum. This cover is sometimes provided as an addon to Decreasing Term Life Insurance. It can also be purchased on its own for a fixed amount of payout – for example, a year
Income Protection Insurance. This provides a regular income if you are unable to work due to illness or injury. There is no set list of what illness or injuries are covered, the only criteria is that it should be something that stops you from doing your “own occupation”. There is usually a deferred period, typically 1 month, 3 months or 6 months. What this means is that the policy doesn’t start to pay a regular income until you have been unable to work for that length of time. In calculating how long the deferment period should be, we encourage clients to consider their employer’s sick pay arrangements and how much savings they have. The policy is typically paid until the person is well enough to return to work, or the end of the policy term (whichever is sooner). Typically the policy term itself lasts either the length of the mortgage term, or to the planned retirement age.
It is possible to get budget cover which has a maximum payment length of 1, 2 or 5 years. This reduces the cost, but it is not a full solution if you suffer a permanent injury or illness. It does, however, buy you time to make other arrangements.
The other variable which impacts upon the cost of this insurance is how much it pays out per month in the event you were unable to work. Some have options to pay out the maximum, which is typically 70% of gross income, alternatively clients can choose for a lower amount to be paid out which covers the essentials, for example, mortgage, council tax, finance payments, etc. All in all, this is a powerful insurance cover that covers many risks and which can be tailored to any budget.
Family Income Benefit. This is life insurance that pays out an income to a family member in the event of a death. For example, let’s imagine a father dies, and he has Decreasing Term Life Insurance which pays off the mortgage. However, the mother is now on her own with children and no longer has his income for the household. She has many future costs to face, for example school fees, child care and university. Family Income Benefit pays out a regular income to the mother at this point. Clients can choose an annual amount that is paid, and the length of term it pays for, usually until the youngest child is 18 or 21.
Level Term Life Insurance. This is the simplest form of life insurance, and it pays out a fixed amount over a finite period. So for example, £50k to your chosen beneficiaries in the event of your death for the next 10 years. This is used to cover things like day to day living expenses, funeral costs, inheritance tax, etc.