Life Assurance
Covers you in the event of death or Terminal illness. These types of policies are level term and pay out a lump sum usually to cover a mortgage and loans, so that the debt is not transferred to relatives.
Life Insurance and Critical Illness Cover
This cover pays a lump sum out in the event of death or earlier Critical Illness, usually to pay of any debt. The Critical iIlnesses that are covered can vary depending on the insurer so it may pay to check to see what is covered.
Mortgage Protection
Not to be confused with Mortgage Payment Protection. This cover pays out a lump sum that decreases in line with a mortgage. The rate used to decrease the lump sum can vary and will affect the premium so you need to make sure that the rates are the same when comparing quotes.
Mortgage Protection And Critical Illness
This cover pays a reducing lump sum in the event of death or earlier Critical Illness, usually to pay of a capital repayment mortgage. The Critical iIlnesses that are covered can vary depending on the insurer so it may pay to check to see what is covered.
Family Income Benefit
This cover is designed to replace the income of a adult following death or critical illness. The poilcy will payout for the term chosen on an annual basis.
Options
There are a number of options to consider when choosing a life insurance policy that should be discussed with you at point of sale:
- Single or Joint basis: If the policy is joint you can decided what event to pay out on. Once a claim has been made for one person on the policy it cannot be made for the other.
- Premiums reviewable or guaranteed: if the premium is reviewable after a number of years sometimes annually the montly premium will vary depending on current rates. If the product is guaranteed the premium will not change through out the term of insurance.
- Wavier of Premium Benefit: If this option is selected the monthly premium is paid in the event of incapcity after a defined period usually 26 weeks.
- Guaranteed Insurability Option: This allows you to be able to increase the amount of cover with your current insurer at the exisitng terms.
- Buy Back Option: This allows you to buy back the insurance terms following a claim. e.g if a critical ilness claim is made on a policy you will have the option to buy the life cover element back as if no cover had been made.
- Child cover: Most insurers offer a facility to cover children on the same policy as adults. Occasionally the terms of cover will vary from that of the adult so it will be of benefit to check with your broker what options are included.
Income Protection
This cover is designed to protect against long term illness. Although the payout terms are similar to that of payment protection, the duration of the payout is for the length of the illness as apposed to 12 months. Therefore if you are unable to work for several years the policy wiIll pay a regular income.The pay out amount is limited to between 55% and 60% of gross income which is paid tax free and can be claimed in conjunction with statory sick pay, this effectivily means that up to 80% of net income is paid depending on your tax band.Income protection will not pay contributions on top of other income received that exceed the pay out limit. For example if you receive £1000 per month gross and get paid £500 while ill by your firm, the insurance company will only pay £50 per month (if the limit is 55%) until the firm stops paying, then the full £550 will be paid.
Mortgage Payment Protection Insurance (MPPI)
These policy types are linked to mortgage repayments. They usually offer an extra percentage on top of the mortgage payment as a payout. E.g if your mortgage is £500 per month and the cover is plus 25% the payout will be £625 per month. Once the mortgage is paid of the poilcy is no longer valid. Pay-outs occure in the event of accident sickness or unemployment depending on the policy selected, and pay out term is often restricted to 12 or 24 months. Therefore this type of policy is not a long term income repalcement policy. These policies also have a defferal period attached, this period reflects the time required before a claim can be made. For example if the policy has a 30 day defferal period dating back to day one, the policy will not pay for the first 30 days in the event of a claim but after 30 days will back date the claim to the first day.