Life insurance is a vague term as there are numerous different types of life insurance. We put together this mortgage protection guide to explain what it is and why we always recommend any homeowner to take out life insurance.
If you’re in the market and looking to take out life insurance, it’s worth speaking with a mortgage & protection specialist in York. We offer life insurance Advice in York, and we would urge that you take up our offer on a free insurance consultation that we provide to new/existing customers.
That said, if you are confused about the differences between the many various types of life insurance, you need to learn the most suitable policy that covers you best and how long it lasts before making any radical decisions, as not all policies will match your circumstances.
Life insurance pays out a lump sum of money to the deceased loved one/ friend in the event of their passing. With regards to your mortgage, you can choose how the payout gets distributed. Also, the person who took out the cover can decide to either payout through regular payments or a whole sum. Life insurance helps provide:
As stated, there are various types of life insurance policies to choose from, and affordability will always play a large part in our lives. Whilst it would be wonderful to cover yourself for every potential opportunity, that’s not always possible.
Here we have listed the different types of life insurance available. If you want to find out more, speak with one of our protection specialists in York today.
With level term life insurance, you will only get covered for a fixed term as the payout is only valid within the time frame stated inside the policy.
People usually take out this policy that’s in line with their mortgage term. So a level term typically runs between 5-25 year terms in 5-year increments.
Why would you want to take out a policy that decreases in value? Well, this policy targets homeowners with repayment mortgages. Homeowners choose to take out this policy to pay off the outstanding mortgage balance should they die.
The policy’s value mirrors the outstanding balance remaining on your mortgage. As the amount owed on your mortgage decreases, so does the sum insured.
This type of life insurance works in the opposite way to decreasing term life policy. The difference with Increasing the life insurance is that you are covered for increases as your term goes on. It will increase by a fixed amount until your policy term ends.
Increasing term life insurance can help protect the policy’s total value against inflation and is usually in line with the retail price index.
The whole of Life policy helps cover you throughout your entire life. The costs of Whole of life insurance will be costly. However, if you keep up-to-date with your payments, you will be covered for your whole life.
This type of insurance is usually used for family protection and is part of inheritance tax planning.
If you are in a relationship/married, you could consider taking out a Joint life insurance policy that will pay out if one of you dies. You could still have two separate life insurance policies if you want to, but it is often cheaper than taking out two separate ones.
This type of life insurance cover may be offered to you by your place of employment. Your company is not obligated to provide Death in Service cover. However, some do as part of their employee benefits package.
Death in service is usually a lump sum of cash paid out to an employee’s family or a person of their choice if they die, and this sum can be up to 5 times their annual salary.
Just because you are a single homeowner doesn’t mean that you should disregard all life insurance options.
If you have settled into a new place and are currently living on your own without children or a partner, it’s not unusual for people to forget about life insurance. People also sometimes choose to ignore it, and this is because it doesn’t always apply to single homeowners.
This doesn’t mean you shouldn’t think about it though as your circumstances could change in the future, and if they do, then life insurance could become an essential thing to have.
We want to make sure that you have the right policies in place to allow you to leave your family in the best position possible if you die. Taking life insurance will give your family financial certainty and take a little stress off them in an already difficult time.
As a Mortgage Broker in York, we know that life insurance, no matter the type of cover, is highly beneficial and can put you at ease knowing that your family won’t have to pay for your debt payments.
If you want to learn more about life insurance, take up our free Insurance consultation in York. We will explain the policies available to you and why they could benefit your family’s personal and financial situation in the future.
But don’t just take our word for it. Why not check our reviews to see what our trusted customers say about Mizna, one of our mortgage protection and specialist
We always ask our customers to review us. We do this because our reviews reflect a complete picture of our service from start to finish and highlight how amazing our team is.
Some people didn’t know that life insurance can combine with other policies, depending on your situation. The other Insurance articles we cover include:
Mortgage Protection Insurance is a term used to encompass various different types of cover designed to protect borrowers from events that could severely impact their ability to maintain mortgage payments. There are different variations but when connected to a mortgage they are all there to provide peace of mind and usually fall in to the following categories:
Life cover generally falls into two types – “Whole of Life” or “Term Assurance.”
Whole of Life cover is guaranteed to pay out a lump sum on death, whenever it occurs.
Term Assurance pays out if you die within a specified term of years. There are also different types of term assurance – for example, “level,” “increasing” or “convertible” – but the type most commonly used as mortgage protection these days is “Decreasing Term Assurance.” This can be linked to a repayment mortgage and the sum assured reduces at roughly the same rate as the mortgage balance over the specified term. Because the risk to the insurer diminishes over time, the premiums are generally cheaper than the other types of life cover. If the policyholder dies within the term, then the sum assured should be enough to pay off the outstanding mortgage balance and ensure the borrower’s dependents aren’t left with a debt they might not otherwise be able to manage.
There’s an argument that says that life cover is taken for the benefit of other people – i.e. your dependants – because sadly you won’t be around to see any benefit yourself. However, these days, thanks to improvements in the sort of medical treatment available, many people now survive conditions which once might have been fatal. Nevertheless, whilst undergoing what may be lengthy spells of treatment and recovery, it could have a marked effect on your ability to meet your financial commitments.
This has led to the development of Critical Illness cover.
This works in a similar way to Life Assurance, in that it is usually taken for a specific term of years and can have different options such as level/increasing etc. It is designed to pay out a lump sum and, like Life cover, for borrowers, it is typically taken on a decreasing term basis in line with the reduction of your mortgage balance. The key is that the benefit is paid if you fall victim to one of a number of specified critical illnesses, and pays out whatever the long term prognosis of that illness.
The type of illnesses covered vary from company to company but, in general terms, insurers usually cover between 40 – 50 specified conditions including cancer, heart attack and stroke. Pay-outs depend on meeting the required level of seriousness of the particular condition suffered and the life companies all work to at least the pre-designated clinical definitions as prescribed by the Association of British Insurers. This means that they can’t just arbitrarily decide that you’re not ill enough.
Hopefully, if your treatment is successful, it means that not only have you survived, but you can benefit from your prudence by no longer having a mortgage to pay after your illness.
In practice many companies will offer Life and Critical Illness Critical cover as a combined policy and would usually payout on the “first event” i.e. whatever happens first – either death or a serious illness – the pay-out is made. They can also be written on a single or joint life basis.
Whereas Life and Critical Illness cover pays out a lump sum, “Income Protection” pays out a monthly sum designed to replace your wages in the event of you being unfit to work.
Unlike Critical Illness cover, there are no restrictions on the illnesses or injuries covered, the only factor being whether they make you unfit to work. There are however restrictions in how much you can cover and how quickly benefits would start to be paid. This is largely because the insurers want you to have an incentive to return to work rather than being better off on sick.
Typically, the most you can cover would be approximately 55%-65% of your income and benefits would begin to be paid after a “deferred period” which would normally equate to the length of time you would receive sick pay from your employer.
Benefits would continue to be paid for as long as you remain unfit to work or until the policy term ends, whichever comes first. However, to make premiums cheaper, most companies offer a “budget” option whereby benefits would be paid for a shorter period – usually between 2-5 years – to at least allow you to make alternative arrangements in case it looks like you’ll be incapacitated for longer than that.
Like Life and Critical Illness cover, these policies are underwritten based on your health and lifestyle at the time you apply. All income protection policies are written on a single life basis.
Similar in many ways to Income Protection these policies also cover you should you be made unemployed. Benefits are usually linked to your mortgage and other costs (rather than necessarily your wages) and would usually be paid one month “in arrears” after a successful claim.
These policies are only underwritten at the time of a claim rather than at the outset, which can sometimes mean there can be some confusion/delay as to whether a claim would actually be met. They are clearly a useful safety net if you are made long term unemployed but be sure to check the details of how/when any unemployment benefits would be paid out, as it may be that you would have returned to work before any monies become due.
Probably the least common of the “mortgage protection” type policies but can often be valuable – particularly for those with young families. These plans can be taken to cover Life and/or Critical Illness and are underwritten on application in the same way as mentioned above.
However, unlike the traditional forms of policy, rather than pay out a lump sum, the cover would pay an annual or monthly income for the remainder of the term of the plan. Thus it can replace the income of the main bread winner for a number of years, dependent upon a particular client’s circumstances and, because of this would usually be written on a level or basis, or an index linked basis designed to keep up with inflation.
There’s an old adage that says you can never have too much insurance. Certainly many people have one or more of the different types of policy and it would be wrong to think of Mortgage Protection Insurance as just an “either/or” choice.
However, in the real world, affordability plays a massive part, so whilst it would be fantastic to cover yourself for every potential opportunity, a good advisor will sit down with you and tailor the type of cover to be the most suitable combination to your family’s priority and budget. If you do take more than one type of policy however, your advisor would usually place all the cover with one provider. This is to save you the additional policy administration charges which individual policies carry but which are reduced when bringing all the policies under one plan.
Income Protection Insurance will pay out a monthly benefit if you are unable to work due to illness or accident. The applicant can decide along with the help of their Advisor how much cover to take out. Also how long they are prepared to wait before they are entitled to put a claim in. The big advantage of Income Protection Insurance is that, unlike Critical Illness Cover, it pays out for whatever is preventing you from working not just a list of specified illnesses.
Income Protection insurance is sometimes expensive when comparing it to life cover. As you are far more likely to be unable to work due to illness than die. The monthly benefit continues paying out until you return to work unless you have selected the “Budget” version of the policy. This typically only pays out for 24 months but is much cheaper.
This type of policy is very popular amongst the self-employed and also employed applicants who do not benefit from generous Employer sick pay schemes.
It’s very important that all of our customers are given an equal opportunity to take insurance our through ourselves. We wouldn’t be doing our job right if we didn’t mention it!
We offer all of our customers a free, no-obligation protection review where we’ll have a look at any existing policies you have in place and assess their suitability. We’ll then recommend which products, including critical illness and income protection that meet your needs. If required, we’ll then tailor the plan to match your available monthly budget.
Critical Illness Insurance pays out a lump sum if you are diagnosed with one of the conditions on the policy such as Cancer, Heart Attack or Stroke.
Sometimes Insurers receive criticism for declining claims when someone is very ill but with an illness not covered on their policy but most major providers actually payout over 90% of claims.
If claims are denied it can also be because the claimant did not disclose an underlying medical condition they have when they took the policy out.
In the event of a claim the lump sum is paid out irrespective of whether the claimant returns to work or not, the key thing is whether the illness they had matched the definition on their policy.
The claimant can use the lump sum they receive for any purpose they wish. Be this to repay their mortgage, pay for medical care or make modifications to their home.
Different insurers cover different illnesses on their policies and it’s wise to take advice prior to selecting a policy.
This will ensure that you end up with one that is suitable for your needs. Critical Illness Insurance is much more expensive than life cover because the chances of you making a claim are far higher.
Your chances of surviving the types of conditions covered are far higher than they were 30 years ago. However, if you are unfortunate enough to contract one of them then there are often financial consequences.
Hence the popularity of the cover, especially for applicants who have mortgages or children to think about
It’s very important to us that all of our customers are given an equal opportunity to take insurance our through ourselves. We wouldn’t be doing our job right if we didn’t mention it!
We offer all of our customers a free, no-obligation protection review where we’ll have a look at any existing policies you have in place and assess their suitability.
We’ll then recommend which products, including critical illness and income protection that meet your needs. If required, we’ll then tailor the plan to match your available monthly budget.