Insurance & Financial Protection


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Part of any personal financial plan will involve insuring against unforeseen events.  These  could include:

If any of the above incidents were to occur and a person was without insurance, the effects could be financially devastating for the person and / or their family.  The outcome could be a huge legal bill, or the inability to maintain living costs such as a mortgage, rent or household bills.  This is why insurance is so important, even though to some it feels like an unnecessary expense.

Household Insurance (Building & Contents)

Buildings insurance relates to the structure of the home, including fixtures and fittings, all outbuildings and paths/patios. In fact, anything that would normally be left behind when moving home. A mortgage lender always requires that the buyer purchases buildings insurance as a condition of the loan, in order to protect the lender if the home were to be destroyed.

The primary purpose of a buildings insurance plan is to reinstate the building should the worst happen. The sum insured must therefore be sufficient to fully rebuild the home, garages and domestic outbuildings, in the event of a total loss.  This figure must also include all associated fees and costs i.e. site clearance, legal fees etc.

When taking out such insurance, it is important to refer to the product provider’s key facts document which will specify what is covered and more importantly, what is not covered by the plan.

Household contents insurance is designed to cover the cost of replacing, as new, the contents of the home and any outbuildings including household goods and appliances, furniture, furnishings and personal effects etc.

The items included within the contents sum assured are only insured when they are in the home. If a policy holder wants to cover any items away from home (i.e. portable items such as cameras), they must take out 'personal possessions' insurance. Any items insured as personal possessions should not be included in the contents sum insured.

Excess

The policy holder is usually responsible for the first part of any claim e.g. £100.  It is possible to reduce the cost of contents insurance, by increasing the amount of excess however, the implications are that should any claim arise, the excess payable will be higher.

Accidental Damage Cover

Accidental damage cover is usually an option available that is commonly added to a contents insurance plan at an additional cost.

Personal Possessions

It is sometimes assumed that a standard household contents policy will cover a client’s personal possessions against all risks, anywhere in the world. This is not the case so personal possessions cover needs to be added to the contents policy to protect items that are temporarily removed from the home.  Unfortunately, without this cover, items such as jewellery, electrical equipment and clothing would not be replaced if they were lost or stolen away from a policy holders home.

No Claims Discount

As with motor insurance, a no claims discount is offered if the policy holder hasn't made a claim for one or more years.  Someone who has made one or more claims within a 5 year period is seen as riskier to an insurance company and will therefore pay a higher premium than someone who has not made any claims.

>>> Get household (building & contents) insurance
>>> Speak to one of our insurance advisers

Motor Insurance

Motor insurance (also known as auto insurance or car insurance) is insurance that is taken out for cars and other vehicles such as motorcycle and trucks. Its primary purpose is to provide protection against losses incurred as a result of traffic accidents and against liability that could be incurred in an accident.

In 1930, the UK government introduced a law that required every person who used a vehicle on the road to have at least third party personal injury insurance, commonly known as third party only insurance.  The other main levels of insurance are third party fire and theft and fully comprehensive.

Third party only insurance covers:

- Injuries to other people including passengers in your vehicle.
- Damage to other peoples' property/vehicle

Third party fire and theft insurance covers:

- Injuries to other people including your passengers
- Damage to other peoples property/vehicle
- Theft of your vehicle
- Damage to your vehicle caused by fire

Fully comprehensive Insurance covers:

- Injuries to other people including your passengers
- Damage to other peoples property/vehicle
- Theft of your vehicle
- Damage caused by fire to your vehicle
- Accidental damage to your vehicle
- Personal accident benefits
- Medical expenses
- Loss of or damage to personal items in vehicle

It is important to be aware that not all car insurance policies are the same - all will cover the basics, but different companies will vary what they offer. For example, some may offer car breakdown cover and a courtesy car as standard on their comprehensive policy, while others may charge extra.  It pays to know which type of car insurance you need for your purpose and to shop around for the best deal.

What Influences Motor Insurance Premiums?

There are number factors which influence how much a person will pay for motor insurance.  The main ones are:

  • The vehicle's value

  • The make and model of the vehicle

  • The engine size and performance

  • The vehicle's security features

  • Car usage and estimated mileage

  • Where the vehicle will be parked and whether it will be garaged overnight

  • The proposed use of the car e.g. social, domestic and pleasure, commuting and business

  • The postcode of the vehicle owner

  • The age of the applicant

  • How long the driver has held a driving licence

  • Whether the applicant has made any claims within the last several years and if any no claims discount is applicable

  • Whether the applicant has any motoring convictions in the last several years

  • Whether legal cover is included and if so, to what level

The above list is not comprehensive, but covers the main factors which influence how much a person will pay for a particular type of motor insurance.

>>> Get motor / car insurance
>>> Speak to one of our insurance advisers

N.B. it is important that when applying for motor insurance, you give honest answers and disclose anything which may effect your premiums.  Failing to do so may result in a policy not paying out in the event of a claim.

ASU / PPI Insurance

ASU (accident, sickness and unemployment) insurance is sometimes known as payment protection insurance (PPI).  This type of insurance is designed to cover debt payments (e.g. mortgage, loan or credit card) that is currently outstanding in the event of loss of income due to accident, sickness or unemployment.

On a claim, subject to appropriate criteria being met, the insurance covers minimum repayments against the loan or overdraft for a finite period (usually 12 - 24 months).  After this period, the person is then required to make the monthly payments on their debt.

Sum Insured

The sum insured will normally match the monthly mortgage payment or loan or credit card minimum payment unless you choose you don't want to spend that much. Any existing arrangements must also be taken into account (e.g. income protection plans).

There is usually a deferred period before any claim is paid e.g. 30 or 60 days. You need to select the duration of the period based on your needs. The longer the deferred period, the lower the premium.  The deferred period for a mortgage payment protection plan must reflect the amount of time you are able to financially support yourself / your family, if you are unable to work.  Any existing arrangements must also be taken into account.

PPI Mis-Selling

There has been quite a lot of controversy regarding the mis-selling of PPI in recent years and many people have claimed to have all, or some of their premiums paid back to them.

The most common criticisms of PPI is that it has been hugely overpriced, oversold and in many cases, not fit for purpose.  The main problems with PPI can be:

  • Single premium PPI policies mean the premium is added into the loan and interest is charged on it.  This can increase monthly payments by 20% or even more.  Single premium policies are now obsolete because of this reason.  Claim back your mis-sold single premium PPI policy here

  • PPI that covers credit card debt only covers minimum payments, meaning the actual balance may not decrease over the 12 - 24 month period that is covered

  • There are certain medical exclusions.  For example, if you have a medical condition (even if this isn't particularly serious) when you take out the insurance, you won't be covered for anything that can be linked to that condition – in fact, you may not be covered at all

  • The term of most PPI policies only last for five years, so if the loan or credit agreement last longer than this, you will not be covered

To summarise, PPI is more about lenders and insurance companies making commission that it is about protecting consumers.  John Fingleton OFT chief executive said, "Despite some evidence of a degree of consumer satisfaction with aspects of the product, the evidence as a whole suggests consumers get a poor deal."

Before you take out a PPI / SU policy, it is recommended that you speak to a qualified adviser who you trust and who will explain the pro's and cons of the product and whether it fits your needs.  A more suitable product may be an income protection product but again, we recommend speaking with a qualified adviser.

>>> PPI policies to cover your mortgage, loan or credit card
>>> How to claim a mis-sold PPI policy

Critical Illness Insurance

In the UK, 1 in every 4 people will suffer a critical illness between the ages of 30 and 60 (source: Bupa).

Critical illness insurance is a policy that pays out a tax free lump sum of money upon diagnosis of a specified critical illness. When you suffer from a critical illness it can seriously affect you financially and the last thing that you would need is to face not being able to pay bills or make mortgage payments.

If you suffered from a serious illness (e.g. cancer, heart attack, stroke, multiple sclerosis), you will probably suffer a loss of earnings through being unable to work and may need to change your lifestyle to account for the results of the illness. Many people who suffer a critical illness need to make modifications to their homes and also have their income limited so they need to pay off their liabilities, such as a mortgage.

There are 2 main types of Critical Illness Insurance:

  1. Level Term Critical Illness - the sum assured is guaranteed and therefore remains unchanged throughout the term of the policy. It's often used to cover interest only mortgages, loans and for family protection
  2. Decreasing Critical Illness - the sum assured decreases throughout the term of the policy. It is often used to protect capital and interest repayments on a mortgage or loan

An estimated 1 in every 3 people develop cancer at some point in their life (source: Bupa).

As with any type of personal insurance, it is important that you are made aware of all the product's features, benefits and limitations and how they fit your personal needs and circumstances.  We therefore recommend that you speak to an independent financial adviser.

>>> Make an enquiry about critical illness insurance
>>> How to decide what type of insurance is best for you

Income Protection Insurance (PHI)

Income protection insurance (some times called permanent health insurance or PHI) provides long-term accident and sickness cover and is designed to pay a regular tax-free monthly income until you can return back to work.

If you fall ill or have an accident and are therefore unable to work, by law, an employer must pay most employees statutory sick pay for up to 28 weeks, though this will probably be less than an employees full earnings.  After this period, one would have to rely on state benefits, which in the vast majority of cases, would be no where near enough to cover liabilities and living costs.

Insurance aims to put someone back to the position they were in before they suffered a loss. So the maximum amount of income someone can replace through income protection insurance is broadly the after-tax earnings they have lost, less an adjustment for State benefits (usually statutory sick pay or incapacity benefit). This usually translates into a maximum of 50% - 70% of before-tax earnings.  For example, your pre-tax employed income is £30,000, an income protection policy would pay between  £15,000 - £21,000 tax free income per annum (£1,250 - £1,750 per month).

Costs of Income Protection Insurance

An income protection insurance policy is paid monthly and the cost of the premiums depends on a number of factors, which include:

  • Age at start of policy

  • Sex - gender can effect premium levels

  • Current Health - any health problems will mean a higher premium or may even mean you will be refused cover

  • Occupation - some jobs pose more of a risk than others

  • Lifestyle & Hobbies - smoking will increase premiums as will a high-risk sport such as rock climbing

  • Deferred Period - this is the period of time between making a claim and actually receiving the benefits.  Deferred periods usually range from 4 - 52 weeks and the longer the deferred period, the cheaper the premium.  Deferred periods usually start when a person ceases to receive sick pay from an employer

It is important that you are made aware of all the product's features, benefits and limitations and how they fit your personal needs and circumstances.  We therefore recommend that you speak to an independent financial adviser.

Life Insurance

Life insurance is designed to pay a tax-free lump sum on the death of the policy holder. It provides financial security for people who depend on you if you died e.g. spouse, children or other dependents.

There are two main type of life insurance: term insurance and whole of life insurance.  Term insurance (also called term assurance) pays out only if you die within a certain term and whole-of-life insurance pays out whenever you die. Some whole-of-life policies also contain an investment element to them, but such investment-type policies cost a lot more than protection-only insurance.  We generally do not recommend them.

Life insurance will also usually be selected to cover a liability such as a mortgage, or to provide family income on death.  If the purpose of term life insurance is cover a repayment mortgage, then a decreasing mortgage cover policy will be selected, which means the amount a policy pays out will mirror them remaining mortgage debt at the time of a claim.  A policy selected to cover lost income, will usually be a level protection plan where the amount of benefit would remain consistent during the term of the plan.

Variations

To make sure you  take out the right plan with the right terms and conditions, you should consider getting some advice. A qualified adviser will assess what your family would need, and will shop around for the cover that suits you best.

It is very important that you always answer questions as best you can and disclose any existing medical conditions when asked. If you don't give the full facts, you could invalidate your policy and an insurance company won't pay out.

Here are some variations in term life insurance policies:

  • Increasing, decreasing or level benefits e.g. this could be to cover a mortgage, to provide family cover or increase in line with inflation

  • Renewability - can the term or amount of cover be increase or decreased due to changed circumstances and without penalty?

  • Waiver of premium - would you want the insurance company to cover the premiums if you were unable to work due to illness?

  • Are premiums fixed for the whole term or are they renewable (e.g. after every 5 years)?

  • Trusts - many policies should be set up in trust so benefits can be paid directly to beneficiaries without unnecessary legal delays

Costs of Life Insurance

This depends on several factors, such as the amount of cover you want and the length of the term. It is also based on the likelihood of an insurer having to pay out: if you're a smoker and do a dangerous job, you'll pay more than a non-smoking office worker. Term life cover also costs more for men because, on average, they don't live as long. Always compare what's covered by a policy, not just the price. Some might be cheaper than others, but they may not offer the same benefits or level of protection.

Whole of Life Insurance

This type of insurance pays out an agreed sum on death, whenever that is.

These policies will cost more, partly because they will pay out whenever death happens, but also because of the various charges that come with the.  In reality a whole-of-life plan is a kind of insurance and investment plan, where the policy holder knows that their beneficiaries will definitely receive a cash sum upon their death, whenever that is (subject to maintaining the monthly premiums).

Whole-of life insurance policies are usually taken out to cover funeral expenses, for cash gifts or to cover inheritance tax (IHT) liabilities on death.

We strongly recommend that you seek advice when thinking about a whole-of-life policy and consider all options carefully. A qualified adviser will assess what your family would need.

>>> Speak to one of our qualified independent financial advisers
>>> Find out more about your inheritance tax liabilities
>>> Alternatives to whole-of-life insurance

Business / Key Person Insurance

The serious illness or death of a shareholding director, key person or partner in a business can create severe problems. Taking out a life plan to protect against death or critical illness can help ensure the company / shareholder / partners do not suffer financially.

If you have a need to protect a business / partner(s) or shareholder(s), you should establish the following:

  • Is the cover required in trust or on a life of another basis?

  • Is life cover required? If yes, to what level, what term and why?

  • Is critical illness cover required? If yes, to what level and term?

  • If both life and critical illness cover are required, do you need the life cover to fall away in the event of a critical illness claim?

  • Is income protection required? If so, on which life / lives?

Business / key person insurance could cover business liabilities such as overheads, rent and / or mortgage(s), a key person's family, or share holding.

Of course, business insurance is a wide area and covers things such as:

- Employers liability
- Public liability
- Product liability
- Professional indemnity
- Property
- Business assets and equipment

As with all insurance, the question to ask is 'what if?'.  If an event happened and it would seriously compromise your situation, then it is probably worth insuring against it.

Conclusion

Insurance is about protecting your interests in an unforeseen event.  If such an event happens and you're not insured, it can be devastating, whether that is from a financial, personal or business perspective.  For an affordable monthly premium, you can take out a policy that will give you and those people important to you, peace of mind, knowing that all eventualities are covered.

>>> Speak with one of our qualified business insurance advisers
>>> What needs insuring in your business?

 

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