Life and protection insurance explained!
T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
Introduction
Some things are certain in life, like the fact that one day, well die. Most of us would like to think that when that day comes well be old, our loved ones will be financially secure and our financial responsibilities will be taken care of. But some things are less certain and, sadly, such a situation isnt always the reality. Even if we do live a long and happy life, we may at some point suffer an illness or accident that prevents us working, or become a victim of unemployment. Its therefore sensible to consider how best youd protect your finances and those of your family if the worst were to happen. This guide will explain the types of Life and Protection Insurance available, what theyre used for, and how your Moneysprite Adviser can help you choose the solution thats right for you.
What is Life and Protection Insurance?
Life and Protection Insurance policies are designed to protect you and your family from the financial consequences of death, a serious accident or illness, or unemployment. Far from being a luxury, Protection Insurance should be considered essential, especially if you have a family or people that rely on your income. If you suffered a serious illness or injury, you may lose your income - this could lead to you losing your home. Similarly, if you died would your loved ones be able to maintain their current lifestyle without your income? You may already have Life and Protection Insurance in place, but its still worthwhile reviewing your current cover levels. Personal circumstances can change regularly so its important to ensure your level of cover is appropriate.
Why do I need it?
Were generally laid back about personal risk, but its worth considering the facts: Every day 35 people under 65 die from coronary heart disease1 More than 1 in 3 people will develop some form of cancer during their lifetime2 If youve been off work for six months, you have an 80% chance of being off for five years3
1. British Heart Foundation - Coronary Heart Statistics 2010 2. Cancer Research UK, October 2010 3. Department of Work and Pensions, September 2010
Whether its coming to terms with the loss of a loved one, dealing with a serious illness, the consequences of an accident or losing your job, it can be comforting to know there are no additional financial worries to take care of. How could Life and Protection Insurance help you? Pay off your mortgage Maintain your or your familys lifestyle Pay for replacement childcare Cover school or university fees Pay for specialist nursing support
T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
Life Insurance
What it does Life Insurance (sometimes known as Life Assurance) helps provide financial security for people who depend on you, should you die. Why you might need it Although money cant replace a loved one, it can help those left behind to weather the financial storm. For example, it could pay off the mortgage or provide a regular income to help cover regular household expenditure.
What if...?
If you were to die, would those left behind be able to meet their financial obligations? 455 The average weekly expenditure of UK households1 29,929 The average owed by every UK adult in the UK (including mortgages)2 201,000 The average cost of raising a child from birth to the age of 213
1. Office for National Statistics, 2009 2. Credit Action, October 2010 3. LV= Cost of a child survey, 2010
Types of Life Insurance
There are different types of Life Insurance - the most appropriate type for you will depend on your circumstances. Life Insurance will pay out either a single lump sum (sum insured) or a regular income either when you die, or if you die within a specified term. Term Insurance This is the simplest type of Life Insurance. You choose how long youre covered for, eg. 20 years (the term), and the policy pays out if you die within the agreed term. You can also take out term cover as a couple, with the policy paying out on the first death only during the term. There are several different types of policy: Level - cover and premiums remain the same Increasing (or Index-linked) - cover and premiums gradually rise in line with inflation Decreasing - cover and premiums gradually fall. Generally used to protect a repayment mortgage Renewable - you can extend the original term of the policy Convertible - lets you convert the policy to Whole of Life Insurance Family Income Benefit Insurance This is essentially the same as Term Insurance, but instead of paying a lump sum when you die, it will pay out a regular income instead. This type of payment may be more suitable where the main purpose of the policy is to provide ongoing financial support to dependants. Whole of Life Insurance Whole of Life Insurance pays out a lump sum when you die, whenever that is, as long as you are still paying the premiums. If you were to die, would those left behind be able to meet their financial obligations?
T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
Critical Illness Insurance
What it does Critical Illness Insurance pays out a tax-free lump sum on the diagnosis of certain lifethreatening or debilitating (but not fatal) conditions including heart attack, stroke, cancer and major organ transplants. This list will vary depending on the insurer, as will the exclusions for making a claim. Critical Illness Insurance often comes as an optional addition to a Life Insurance policy, but can also be purchased on its own. Policies usually only pay out once, so they dont necessarily replace your regular income, but you can use the money towards medical treatment, your mortgage or anything else you choose.
Lottery of life
On average, UK adults spend 3.15 per week (over 160 per year) gambling on the National Lottery1. Yet you're much more likely to suffer a serious illness than see your numbers come up.
Source: 1National Lottery 2009
Why gamble on your future? Having the right protection to suit your lifestyle means youre much more prepared financially should you suffer a serious illness.
Winning the lottery jackpot 1 in 14m chance2 Having a stroke 1 in 5 chance3 Getting Cancer 1 in 3 chance4
Source: 2 www.money-watch.co.uk 3 www.stroke-education.com (over 55, female statistics) 4 info.cancerresearchuk.org
Why you might need it Many people buy Critical Illness Insurance when they take on a major commitment, like a mortgage, or start a family. However, since wed all like to have our financial commitments lightened if we were to suffer a serious illness or injury, the cover is relevant for most of us at any time. Replacing an existing Critical Illness policy If you already have Critical Illness Insurance you should think carefully before you cancel your existing policy and take out a new one. For example, if youve developed any illnesses since you first took out the policy, you may lose some of the benefits when you replace it. Thats because pre-existing medical conditions may not be covered by the new policy. Recent advances in the treatment of certain conditions, such as cancer, may also have an effect, as a new policy might be more restrictive than an older one when it comes to paying claims for certain conditions. Your Moneysprite Adviser will be able to quickly identify the issues and help you make the right decision about your Critical Illness Insurance.
T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
Income Protection Insurance
What it does Income Protection Insurance pays out a regular tax-free replacement income if you become unable to work because of illness, injury or unemployment. It could help you keep up with your mortgage repayments and other living costs until you are able to return to work. Policies have a waiting period before they pay out, which begins when you become unable to work. The longer the period chosen, the lower your premium. Its a good idea to find out what your employer would pay you, and what state benefits might be available so you can choose an appropriate waiting period. Your Moneysprite Adviser will consider these, along with any other insurance policies you have to help you decide. The premium youll pay will vary depending on your age, health and job, as well as the level of income you wish to protect. Why you might need it If you become ill or suffer an injury during your working life, an Income Protection policy can help protect against any possible loss of income, and could help you recover and return to work. You may find it useful to consider how much you spend maintaining your current lifestyle, and the impact of any loss of income.
Other types of Protection Insurance
Payment Protection Insurance Also known as Mortgage Payment Protection Insurance (MPPI) or Accident, Sickness & Unemployment Insurance (ASU), Payment Protection Insurance can cover your mortgage or loan/credit repayments if you are unable to work due to illness, accident or unemployment. Whilst it may appear similar to Income Protection Insurance, there are key differences, including a limit on the length of time a replacement income will be paid out for often 12 months.
What else do I need to know?
What cover will I need and how much will it cost? This will very much depend on your own personal circumstances, but your Moneysprite Adviser can quickly help you calculate an appropriate level of cover by considering things like: Your mortgage and/or any other outstanding loans Your current income and future income expectations Any childcare needs if you or your partner were to die or suffer serious illness or injury Clearly, the higher the level of cover you decide you need, the more it will cost. Your age, medical history and occupation are among other factors that will also have an effect. However, Life Insurance is a highly competitive business and premiums have been falling in recent years. These days there is also greater flexibility within individual products which can adapt to your changing needs.
T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
Writing your Life Insurance in Trust A Trust is a legal document that allows you to specify what will happen to your money after your death. If your Life Insurance policy is written in Trust, any payout will go to the Trustees who will ensure the funds are distributed to the correct beneficiaries. A Life Insurance policy that has been written in Trust does not form part of your legal estate and is not subject to Inheritance Tax, allowing more of your money to pass to your beneficiaries. Life Insurance companies also tend to pay the money out much quicker under these circumstances, making things easier financially for your beneficiaries. Even if your partner is your beneficiary (and therefore the Life Insurance payment would be exempt from Inheritance Tax under current rules), it can be worth putting your Life Insurance in Trust to ensure payment is made as quickly as possible. This is something your Moneysprite Adviser can easily arrange. Theres normally no charge for this service if its arranged when the policy is taken out. Keeping your cover up to date You should always consider reviewing your level of Life and Protection Insurance whenever there are significant changes in your life. Getting married or moving in with a partner, buying a home, having children or changing your job can all have an impact on your financial obligations. Even if your circumstances dont change significantly, it can be worth reviewing your arrangements to see if you can find a more suitable policy. Having said that, its important to ensure the cover of any new policy matches or exceeds that of your existing one. Look beyond the price Finally, while it may be tempting simply to opt for the cheapest policy available, it is important to bear in mind that whilst many products may look the same, there can be important differences between them that can be difficult to spot. Your Moneysprite Adviser will be able to help you make the right selection.
What happens next?
Getting to know you Your Moneysprite Adviser will complete a comprehensive Fact Find with you either face-toface, or over the phone, so that they can identify the products that best suit your needs. Researching the options Using their expert product knowledge, and Moneysprites analysis software, your Adviser will put together a personal recommendation for you. Recommending the right solution Once your Adviser has identified the options available, theyll meet with you again or discuss their recommendations over the phone, and write to you so you can review what they have suggested and why. Assuming youre happy with your Advisers recommendation, theyll work with you to complete the application forms and stay in touch throughout the process - and into the future.
T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
Jargon Buster
Beneficiary The individual named in a Life Insurance policy to receive the funds paid out on the death of the Insured Convertible Term Assurance A type of Life Insurance that enables you to convert a Term Insurance policy into a Whole of Life policy or, in some cases, add an investment element Critical Illness Insurance Offers you and your dependents protection by paying out a lump sum (or regular income for a pre-determined period) should you be diagnosed with a specified critical illness during the term of the policy Decreasing Term Assurance The sum insured steadily decreases over the course of the insurance term. Its traditionally used to cover the reducing balance on a repayment mortgage Family Income Benefit Pays a regular, tax free, fixed regular income to you family in the event of your death, instead of a single lump sum Guaranteed and Reviewable Premiums The cost of premiums can either be guaranteed throughout the term of the policy or fluctuate as the rate of inflation varies Income Protection Insurance covering the payment of a proportion of your salary for a given time if you are temporarily unable to work because of sickness or injury Increasing Term Assurance A convenient way to compensate for the adverse effects of inflation over the insurance term Indexation Index-linking allows both premiums and the sum assured to be increased in line with the Retail Price Index Joint Life Cover Can be purchased by couples, whether married or not. Joint cover pays out on the first death (Life Insurance policy), or the diagnosis of a serious illness orreceiving a serious injury (Critical Illness policy). Level Term Assurance This is the simplest and most straightforward Life Insurance. In exchange for your premium the insurer agrees to pay a fixed, guaranteed lump sum should you die during the term of the insurance Life Insurance/Life Assurance Interchangeable terms for insurance that pays out upon the death of the insured Mortgage Payment Protection Insurance A policy that will cover your mortgage expenses if you cant work, due to an accident or illness, for a limited period of time. You can often add unemployment cover to this type of policy Premium The amount you need to pay to the insurance company for your cover Renewable Term Assurance Gives the policyholder an option to renew the insurance at its expiry date without having to provide a medical report Terminal Illness Cover Pays out if you are diagnosed with a terminal illness, subject to certain conditions Total and Permanent Disability Cover Offers protection in the form of a lump sum or regular monthly payment if the policyholder suffers a total and permanent disability during the term of the insurance Trust A way of putting something valuable (in this case your Life Insurance policy) aside to ensure the money goes to the people you want it to when you die. Putting the policy in the name of a Trust can help to avoid Inheritance Tax Waiver of Premium An optional policy cover that provides continued cover (without further premium payment) if you become unable to work due to injury, sickness or unemployment Whole of Life Insurance A form of Life Insurance that only expires upon the death of the insured, as long as premiums continue to be paid
T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
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T 0845 450 4660 www.moneysprite.com
Moneysprite Limited is a registered company in England and Wales No. 5605928. 5 Old Bailey, London, EC4M 7AR
