Mortgage Protection

There’s no play without work, a regular income protects what matters most, so isn’t it worth protecting?

Based on research carried out in 2015, the average household spends £1,422 on essential bills each month, this includes things like mortgage repayments, insurance policies, gas and electricity, mobile phones, house phones, broadband, pet insurance, TV license and TV provider bills.

Many people are under the impression that if unable to work the state will protect them. Did you know the maximum the government will pay per week in Statuary Sick Pay is £87.55 for only 28 weeks? Could you and your family survive on £350.20 a month?

How will £350.20 possibly stretch to the £1,422 of bills each month bearing in mind this figure doesn’t include any food or travel costs?

32% of households have no savings what-so-ever. This is a huge percentage of people living with no Plan B for when an illness or accident leading to unemployment should hit. By implementing just a small amount of Income Protection, you can rest assured knowing you have a plan B in place to cover your monthly expenditure if disaster should strike.

Income Protection works when you can’t. If you find yourself unable to work due to an accident or long term sickness, your Income Protection cover will begin to pay you a monthly income to replace your monthly salary.

Whether you work in an office, are a steel erector or play football for Manchester United, FD Protect Insurance Brokers provide protection solutions for all types of job’s, trades and careers including the self-employed.

For example, we have covered sports professionals to provide an income due to an injury sustained whilst playing football.  We have protected builders that needed cover to protect against an accident at work.

Just imagine if you couldn’t work for a period of time, how long would your savings last until you could no longer meet your credit commitments or sustain your lifestyle?

We will research and source the best provider for the level of cover you require in line with your budget for protection, assist you through the application process and we will liaise with the insurance provider to gain acceptance and in the event of a claim we will provide the necessary support to ease stress during this time.

Full Protection: This comprehensive policy is designed to cover your essential expenditure each month in the event of being unable to work due to accident or sickness. An Income Protection policy can be claimed on as many times as needed during the term of the policy. For example if you were unable to work due to an accident or sickness for longer than your chosen deferred period, your Income Protection policy will begin paying you a monthly income until you return to work. If you return to work for a period of time and then become unable to work again, your policy will once again begin paying you a monthly income after your selected deferred period. Your Income Protection will continue to pay you a monthly income until either you return to work or your policy expires.

Budget Income Protection: Budget Income Protection is a great alternative to full Income Protection if the budget you have set aside for protection doesn’t quite stretch for the full cover. You can still have the full monthly benefit, select a deferred period of your choice and chose a term however, there will be a limit on the period of time a claim will pay out for, and this will usually be 24 months but can vary depending on the provider. If you were unable to work due to accident or sickness for 3 months and then returned to work, you would still have 21 months to claim on should you be unable to work at any point during the term of your policy. You can claim as many times as needed up to a maximum of 24 months (if 24 months is the claim period).

Personal Sick Pay: At quotations stage Income Protection cover is costed based on your occupation. If your occupation is higher risk, this can make Income Protection cover expensive. An example of a high risk occupation would be fire fighter. Personal Sick Pay is an age costed product so it is a great product for those in high risk occupations looking for a way to protect monthly outgoings in the event of being unable to work due to accident or sickness. There is no claim period so you can claim as many times as you need to during the term of the policy in the same way you can for a Full Income Protection policy.

Budget Personal Sick Pay: Budget Personal Sick pay works in the same way as Budget Income Protection does for Full Income Protection. There will be a claim period (usually 24 months) in which you can receive income benefits for during the total contract of the policy over multiple claims.

The selected deferred period is the amount of time you have to be unable to work due to accident or sickness before you can begin receiving your monthly income benefit from your income protection insurance provider. The standard deferred periods are 3, 6, 12 and 24 months however there are specialist policies that will offer cover from as little as day 1 of being unable to work due to accident or sickness. The longer the deferred period the lower the monthly or annual premium will be. A deferred period should be selected in line with any employer benefits you will receive in the event of being unable to work due to accident or sickness, or the amount of time you will be able to maintain your monthly outgoings for before requiring the income benefit to pay you.

We will review you’re your circumstances and recommend a deferred period that will ensure that you receive your monthly income benefit when you need it in line with the budget you are able to commit towards this protection.

Typically, the premium of an insurance policy will be more expensive if you are a smoker. This is the case with standard Income Protection however, we have access to insurance providers who offer Income Protection products that do not take smoker status into account went costing so instead of reducing the amount of cover you are applying for, we can source a product that will allow smokers to have the level of cover needed in line with their budget. There are products for everyone and we know where to find them!

Own Occupation: If your Income Protection policy is set up on an ‘Own Occupation’ basis it means in the event of being unable to carry out your usual duties in your own occupation due to accident or sickness your Income Protection benefit will pay out.

Suited Occupation: If your Income Protection is set up on a ‘Suited Occupation’ basis it means in the event of being unable to carry out your usual duties in your occupation, you will also need to be unable to perform duties in any occupation that is suited to you as a result of your education, training or experience.

Standardly, Income Protection policies are set up using the ‘Own Occupation’ method to assess claim payments however, in line with some occupations or health history this may not be available to you. We have an extensive panel of insurers, direct contact with business development managers increasing the chances of being able to secure an ‘Own Occupation’ Income Protection policy for you.

Some Income Protection policies include additional benefits for no extra cost making your policy fully comprehensive. There are also additional benefits that can be included for an extra cost. Some of these include:

• Family Carer Benefit
• Hospital In-Patient Benefit
• Trauma Benefit
• Fracture Cover
• Discount on Other Protection Products
• Health Advise
• Counselling Services
• Legal Advise

There are limits to the amount of cover you can apply for based on your salary. Each provider has different limits for example if your annual salary is £25,000 and the provider allows you to protect 55% of your income, you are able to have a monthly income benefit of £1,145.83.

Although Income Protection is a great policy to protect against loss of income due to an accident or sickness, it does not protect you against unemployment due to redundancy. There are products which protect against involuntary redundancy for the employed and for the self-employed it will provide protection if declared bankrupt, or if the business is insolvent or in liquidation. Unemployment cover is available alongside an accident and sickness policy and will protect mortgage repayments and general outgoings that enable you to maintain a general standard of living.

Like all insurance products there are options applicable to how the benefit amount acts throughout the term of the policy. For Income protection cover, we may recommend setting the policy up on an Increasing with RPI basis to help mitigate the effects of inflation. If you were to take out an Income Protection policy with £1,000 per month as the benefit, although this may cover your outgoings at present, a few years down the line £1,000 will not get you as far as it would currently. This is why we recommend your Income Protection policy increases each year.

It is easy to see why Life cover is necessary alongside a mortgage however the importance of Critical Illness cover is often overlooked.

It is important to think about how you would maintain a general standard of living if you or a family member were diagnosed with a serious illness. Being diagnosed with a Critical Illness could mean never fully recovering drastically impacting the income and lifestyle of your household.

While an insurance policy will not make you or your family member better, it does help to reduce financial strain around this time allowing you and your family to maintain a general standard of living without the need to make too many changes to your lifestyle.

Critical Illness Cover gives you a tax free lump sum of money if you are diagnosed with a Critical Illness during the term of your policy. Built into most critical illness policies is a level of Children’s Critical Illness protection for no extra cost. This money can be used (for example) to:

• Pay off your mortgage loan or any other loans you may have
• Make modifications to your home to help you get around easier
• Pay for private care
• Accommodation for family members if you are being treated away from home
• A holiday with those who matter most

Unlike Life cover policies, there are many features to a Critical Illness policy that makes one better than the other. The main factor we take into account when recommending a provider for Critical Illness is the amount of conditions they provide protection for in their policy. The most comprehensive policies provide protection on around 48 conditions for full pay outs.

Comprehensive Critical Illness cover will also supply partial pay outs for conditions they feel are less severe but still deserving of some a percentage of the total sum assured.

The amount of conditions covered under a policy does have an impact on the premium however, this is not the only factor that increases or reduces a premium. Providers with a good claims history will usually charge a higher premium for their policy as you are getting a higher value policy and the peace of mind that in the event of needing the claim, the provider will pay out. We can work with you to find a comprehensive critical illness policy in line with the budget you are willing to contribute towards protection.

There are many different ways a Critical illness policy can be set up, we will assess your need for protection and recommend the best way to include Critical illness cover in your protection portfolio.

Basis of Critical Illness Cover

Decreasing Term Assurance: This type of cover is designed for repayment mortgages. The sum assured with this cover will reduce in line with you mortgage as you make repayments. The premium is calculated with the decrease in the mortgage balance accounted for and so premiums will remain level throughout the term of the cover. This is the cheapest form of Critical illness cover available however it is not suitable for an interest only mortgage. In the event of premature death it will repay the loan amount outstanding on your repayment mortgage.

Level Term Assurance: This type of cover is designed for interest only mortgages or where you simply require a fixed amount of cover that will not change. The sum assured for level term assurance will remain the same throughout the whole term of the policy. In the event of critical illness diagnosis, this will provide a lump sum equal to the sum assured at the outset.

Indexing Term Assurance: This type of life cover is designed to mitigate the effects of inflation. The sum assured for Indexed life cover will increase each year in line with the Retail Price Index and the premium for this policy will also increase each year to accommodate the increases. Indexing Term Assurance is often used in conjunction with a Family Income benefit policy as it is designed to replace lost income in the event of being diagnosed with a critical illness and therefore no longer being able to work.

Type of Critical Illness Cover

Family Income Benefit: This protection policy is designed to replace the lost income of a significant other or family member in the event of being diagnosed with a critical illness. Family Income benefit is paid as monthly income (tax free) which can be utilised to raise dependents and to help ease financial pressure of losing some of the household income. If the person responsible for dependents childcare becomes critically ill, a critical illness family income benefit policy can

Mortgage Protection: Critical Illness cover can be arranged with a sum assured to match your mortgage loan. In the event of your death, your mortgage can be repaid in full to allow your partner and/or dependants to remain living in the family home.

Life or earlier Critical Illness cover: It can be expensive to insure your whole mortgage loan against Life and Critical Illness separately therefore, there is an option to combine the two covers together. The full sum assured will be paid out either upon diagnosis of a critical illness or death whichever occurs first.

Additional Benefits

Most policies include additional benefits for no extra cost adding further value to a policy. These include things like:

• Child Cover
• Health lines
• Wellbeing lines

Alongside the benefits that are included for free, there are also options to add benefits in for a small cost:

• Fracture Cover
• Global Treatment Cover
• Total Permanent Disability Cover

Our advisors have full information on all of these benefits and will be able to discuss each option with you in depth if relevant to your circumstances. For example, fracture cover may be ideal for those often partaking in sports actives such as football.

As Critical Illness cover is more expensive than Life cover, often it is out of budget to protect the full mortgage loan against Critical Illness cover. There are options to create a multi benefit policy with two separate covers. The first being the Life cover to protect the full loan amount and the second would be the Critical illness cover with a sum assured suited to the remaining budget.

Providers often change the Critical Illness definitions that you are protected against so it is important to us to review your Critical illness contracts on a regular basis. This ensures that you still have the most comprehensive policy on the market so that in the event of a claim you are most likely to receive a pay-out.

FD Protect life insurance advisers will research and source the best provider of Critical Illness for the level of cover you require in line with your budget for protection, assist you through application, liaise with the insurance provider to gain acceptance and in the event of a claim we will provide the necessary support to ease stress during this time.

Aftercare

Our service goes beyond sourcing and applying, once your policy is on risk we will continue to review your contract on an annual basis to ensure you still have the most comprehensive policy available to you.

In the event of a claim we will take the responsibility out of your hands and deal with the whole claim for you so you can focus on getting better of helping a relative recover.

If you run your own business then you will know just how important you and your key personnel are to  the everyday running of the business. What would happen if one of your fellow directors were to die or suffer a critical illness, could the business survive? Have you put in place a plan to buy back a directors shares which would usually automatically pass to their spouse? Too many business owners have not put in place the necessary protection to ensure that their company can survive in the event of the unexpected.

There are 3 main types of business protection:

• Key Person Cover
• Relevant Life Cover
• Partner/Shareholder Protection

All businesses are different and business protection is a really important area that should be given the attention it deserves.  At Fox Davidson we have implemented cover for many businesses in the South West and we will meet with you and your business partners to understand your situation and your concerns and will help you to identify any areas that will need protection.

Following an initial meeting we will provide your business with a full protection plan to ensure that you can continue to trade in the event of a claim. Furthermore our advisers will be on hand at the time of a claim to help with the claim process.

Whole of Life Insurance is a Life insurance policy which is guaranteed to remain in force for the insured’s entire lifetime (Max age 100) provided premiums are maintained.

The policy will mature upon death or at age 100 of the life assured. It is designed to pay a specified sum upon the death of either a single applicant or second death for joint applicants.

The sum assured is tax free and is often used to mitigate Inheritance Tax as well as being used for funeral expenses, estate planning and the income of the surviving spouse.

Whole of Life contracts are widely regarded as the best policies to counter the effects of inheritance tax and is a valuable asset when implementing estate planning.

To discuss your mortgage protection requirements contact us to discuss protecting you and your family in the event of death, illness or loss of income.