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Your guide to
protection
Welcome! By reading this guide you’re taking an
important step in protecting your family from life’s
unwelcome events. No-one can be sure what life has
in store for us, that’s why it’s important to have in
place plans that would provide financially for you and
your family should the unexpected occur.
Most of us are aware that there are policies available that
provide life insurance, protect us in the event of a critical
illness, payout if we had an accident and were unable
to work, and can protect our home and possessions.
However, with so many different types of policy available
in the market place it can be hard to know which one is
right for your circumstances and offers the best value for
money.
However, putting off the decision to take out cover could
jeopardise your family’s financial future should the worst
happen.
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About this guide
With our help and advice, getting the right plan in place
can be simple and straightforward. In this guide, we’ll
explain a little about how policies work and the different
types of cover available. By taking expert advice you can
be confident that you’re making the right decision and
have the type and level of insurance protection you need.
Financial peace of mind for you and
your family
We all want to do the best for our families, and keep
them properly protected on every occasion. Overlooking
the need for life cover could mean that you’d leave your
family with money worries at the worst possible time.
If you need convincing that life insurance is a good product
to buy, ask yourself this question. If you were to die, how
much money would your family have to live on? Many
families would find themselves running short of money
very quickly. Your salary would stop, but the household
bills would keep coming in. A payout from a policy could
make the difference between your loved ones facing a
financial struggle at a challenging and emotional period in
their lives, and being able to maintain the sort of lifestyle
they enjoyed when you were still around.
*Subject to premiums being maintainted.
Life Insurance and Life Assurance
The terms life insurance and life assurance are often
interchangeable and both often known simply as ‘life
cover’.
People often ask what the difference is, so here’s how it
works:
Life insurance is cover you take out for a set number of
years. You agree the term of the policy at the outset,
usually between 10 and 25 years. That’s why you’ll often
find this type of policy referred to as term insurance.
Most people tailor their policy to ensure that their financial
commitments would be met in the event of their death,
so policies are often aligned with the term of a mortgage
or other loan. Banks and building societies usually require
some form of life insurance as a condition of granting a
mortgage.
Families often opt for life insurance to cover them whilst
the children are growing up, taking a policy that will end
when they become financially independent. With life
insurance, you aren’t guaranteed to receive a payout
as you could outlive the term of the policy. However,
what you do get is the continuing peace of mind and
the guarantees that protection policies give you and your
family.
Life assurance, by contrast, is designed to provide cover
until you pass away. It can be more expensive than life
insurance as it covers you for a longer term and pays a
lump sum in the event of death, whenever that occurs.*
You may have heard the phrase ‘whole life’ or ‘whole of
life’ used in relation to this type of policy.
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One policy or two?
Couples have a lot of things in common, and that can
include financial commitments like bank accounts and
mortgages. However, when it comes to life insurance
it can make sense for each partner to have their own
separate policy.
A ‘single’ life policy provides cover for that person only,
and pays out the amount of cover provided under the
policy if the insured dies during the policy term.
By contrast, a ‘joint’ policy covers two lives, normally
on what’s referred to as a ‘first death’ basis. This means
that the policy pays out if during its term one of the
policyholders dies. As the policy is designed to payout
only once, it will come to an end.
So, in this case, the surviving partner would no longer
have any life cover under this policy. If instead each had
their own policy, the survivor would still have life
cover in place.
Joint policies and divorce
It’s also important to consider what might happen if there
was a joint policy in place and the relationship breaks
down. As the policy cannot be split, each would need
to take out a new policy. This could mean that their
premiums would be much more expensive, as the cost of
insurance increases with age.
The right cover for both of you
Whilst one joint policy could be more affordable than
two single policies, depending on personal circumstances,
it makes sense to think about each partner’s life cover
needs separately. With many families these days reliant
on two incomes, it can make financial sense for each
partner to have their own policy in place. That way, they
can each tailor the amount of cover and the length of the
term to their own specific needs. This can be particularly
relevant if you and your partner are different ages and in
different states of health.
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The importance of disclosing all the
facts
When you take out any form of insurance, you will be
required to complete an application form and answer
various questions, so that the insurer can assess the risk
they’d be taking on by insuring you.
You’ll be asked to disclose any information or material
fact that could have a bearing on that risk. So, it’s vitally
important that you disclose all relevant information; if
you don’t, the insurer could declare the contract null and
void, and wouldn’t pay any claims made under the policy.
Material facts include any information from your medical
history or lifestyle, such as medication you’ve been
prescribed, treatment, tests and investigations you’ve
undergone. The onus is firmly on you, you’ll need to be
entirely honest about important details like your smoking
and alcohol consumption, and dangerous hobbies or
pastimes.
Assessing your needs
Your adviser will be on hand to help you, explaining
everything you need to know in plain English, so you
can be sure you’re getting the cover you need for your
specific needs.
Other types of cover that provide
valuable protection
When people think about protection insurance, they
typically think about a traditional life policy that can
protect for a specified number of years or for a whole
lifetime, and pays out a lump sum on the death of the
policyholder. But nowadays there are many other types of
policy that can also have a major part to play in protecting
and providing for the financial needs of you and your
family.
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Mortgage Payment Protection
What it does – Mortgage payment protection policies are
designed to cover the cost of your mortgage payments if
you’re sick, have an accident or become unemployed and
can’t work.
How it works – Generally, the policy will start paying out
either 31 or 60 days after you are unable to work. Most
policies will payout for a maximum of one year.
What you need to know – With statutory sick pay set at
just £96.35** and only payable for up to 28 weeks, many
families would struggle to meet their mortgage payments
if disaster were to strike. The amount payable under the
policy is usually around £1,500 to £2,000 maximum per
month. So, if you have a large mortgage, you will need to
consider how you would cover any shortfall.
You can choose the date at which the policy would payout
in the event of a claim. This can range from a month to
up to a year. Policies that payout sooner will have higher
premiums.*
Income Protection
What it does – This type of policy pays a monthly income
taxfree if you are unable to work due to an illness or
injury.
How it works – The monthly income under the policy will
be between 50 and 70 per cent of your salary and will be
paid until you are fit enough to return to work or reach
retirement age.
What you need to know – State benefits aren’t generous
and only a few employers will continue to support their
staff through a long illness, so income protection policies
can help families through difficult financial times.
You can choose the date at which the policy would payout
in the event of a claim. This can range from a month to
up to a year. Policies that payout sooner will have higher
premiums.*
Critical Illness
What it does – Critical illness cover pays out a tax-free
lump sum if you are diagnosed with a major illness,
including cancer and heart disease. Actual illnesses
covered in a policy may vary between providers.
How it works – Many insurers will make a part payment
on an early-stage diagnosis of a condition specified in
the policy, the percentage will vary from company to
company.
What you need to know – Many people buy a combined
life and critical illness policy, and it makes sense to do
so. In this case, a payment would be made on either
diagnosis of a critical illness as defined in the policy, or
death, whichever is the sooner. If the cover is combined
in this way, the policy premium is usually cheaper than it
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would be for separate policies, as there is only ever one
lump sum paid out by the insurance company.*
Family Income Benefit
What it does – Family income benefit policies work in a
similar way to ordinary life cover, but instead of a lump
sum, the policy pays out a regular income if you die.
How it works – A typical policy might be taken out by the
parents of young children, so that if one parent were to
die during the term of the policy, then an income would
be paid out for a predetermined period of time. So, if you
had a 20-year policy and were to die five years into it,
then the policy would payout a regular income for the
remaining 15 years.
What you need to know – Family income benefit
insurance is a simple way to provide your family with an
ongoing income rather than a lump sum if you were to
die. Critical illness can also be added that would provide
a payout if one of the parents were to be diagnosed with
a serious illness.*
Accident, Sickness and Unemployment
What it does – This policy provides cover so that if you
are unable to work because you’re injured or sick, or
through no fault of your own, you have lost your job.
How it works – In the event of a claim, you will receive a
predetermined percentage of your monthly income,
usually for a period of up to 12 months. Payments are
made after a waiting period of at least a month. If you
choose a longer waiting period, your premiums are likely
to be lower.
What you need to know – Accident, sickness and
unemployment cover differs from mortgage payment
protection which is designed specifically to cover your
repayments on a specific debt such as your mortgage.
It differs from income protection insurance in that it
includes unemployment cover.*
Private Medical Insurance
What it does – Private medical insurance means that
you can get access to diagnosis and treatment faster
and therefore are more likely to recover quicker. Policies
cover the costs of private medical care including seeing
consultants and specialists, treatment, surgery, private
hospital accommodation and nursing costs.
How it works – You will need to decide what level of
cover you want for yourself and your family, as this will
determine what your premiums will cost. You can choose
the level of excess, that’s the amount of any claim you
are happy to pay yourself. Paying a higher excess will
generally bring the cost of premiums down.*
What you need to know – There are conditions which
insurers won’t payout for, including cosmetic surgery and
alcohol or drug-related illnesses. You may find illnesses
that you’ve suffered from in the past are excluded from
cover as they are deemed to be ‘pre-existing conditions’.
* Premiums must be maintained for cover to remain in force.
** https://www.gov.uk/statutory-sick-pay
How we can help
Choosing the right policy, or combination of policies to
provide the right level of protection you need can be a
daunting task if you try to do it on your own. Your adviser
will be able to review your personal circumstances and
recommend the type of insurance you need, giving you
and your family the reassurance and peace of mind that
protection insurance can bring.
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Writing a policy in trust
When it comes to planning for the future, your adviser will
be able to explain how taking the simple step of putting
your policy into a trust* could, in certain circumstances,
make good sense for you and your family.
If you thought you had to be incredibly rich to need to
set up a trust, you’ll be pleased to know that this simple
formality is now widely used to help pass money on
swiftly and efficiently to loved ones on death.
A trust is a legal arrangement that helps ensure that the
payout from your life policy goes to whoever you choose
to receive it, meaning you can control where your money
goes.
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How trusts work in practice
Under normal circumstances, the proceeds from a life
policy form part of your estate on your death and could
therefore be subject to Inheritance Tax if the amount you
leave, referred to as your estate, exceeds the threshold at
which Inheritance Tax becomes payable.
By doing what’s called ‘writing the policy in trust’, the
payout from the policy can be made directly to your
beneficiaries, for instance your wife or your children,
and doesn’t form part of your estate and therefore isn’t
subject to Inheritance Tax.
In addition, the payment wouldn’t have to wait until
the grant of probate, the legal document required to
administer your estate, has been granted. Obtaining
probate can be a lengthy and time-consuming process.
However, if a policy is written in trust, there is no need
to wait for probate as the proceeds can be paid out once
a death certificate has been obtained.
Creating a trust
Most insurance companies will offer this option at no
extra cost when you take out a policy. Your adviser will
explain the process and help you fill out the necessary
documentation to set up this simple but effective
arrangement.
There is a certain amount of jargon used to refer to trusts,
but don’t worry, as your adviser will be able to explain
the technicalities in a down-to-earth way so the details
are clear.
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Cover for your home and contents The amount of cover you’ll need, referred to as the ‘sum
Home insurance is vital to protect the roof over your head assured’ needs to be adequate for your needs so that you
and all your possessions. It’s simple to arrange and acts don’t risk being underinsured. Being underinsured would
like a shock-absorber, protecting thousands of families mean that your insurer might restrict the amount they
each year from the financial effects of life’s unwelcome would payout in the event of a claim.
events like burglary, loss, fire and flood.
Simply walking around your home with a notebook and
Choosing from the hundreds of policies on offer can be pen can help you compile a comprehensive list of what
bewildering and time-consuming. That’s where using an you own. Don’t forget to include those things you store
adviser can be of real help in finding you the best and away in cupboards, basements and attics too.
most suitable deal for your needs.
Valuable items away from home - You can get cover
Buildings Insurance for belongings you have with you when you’re away
This type of policy covers the bricks and mortar and from home. When taking out a policy, you’ll be asked
permanent fixtures of your home. So, if it’s damaged as a if you require insurance for various items such as mobile
result of events like storms and floods, fire, vandalism or phones, laptops, jewellery and cameras. There is usually
water damage from leaking pipes, your policy will cover a limit on the value of any one item, and you may need
the cost of repairs to your property. to specify the items you want to insure.
The amount of buildings insurance you need should Cover for additional risks - For further peace of mind,
represent the cost to rebuild your home, not its full market many people opt to pay for additional cover under their
value which can often be a lot higher. Your adviser will policy. You can, for instance, add insurance for legal
be able to help you calculate the right level of cover for a expenses, home emergencies, drains and plumbing,
property of your type, size and construction. freezer breakdown, accidental damage to home contents
and accidental damage for personal possessions away
You will generally need to have buildings insurance in from home.
place under the terms of your mortgage loan, and you
will be required to include the name of your insurer on
the policy schedule.
Contents Insurance
Contents insurance policies are designed to cover your
possessions from loss, damage or theft.
Insurers define ‘contents’ as all those things that you’d take
with you if you moved house. So, most policies include
things like furniture, carpets, curtains, electrical goods,
clothes and valuables such as watches and jewellery.
The cover available falls into two types: ‘new for old’
policies which means that, if for instance, something is
stolen then the payout will be enough to buy an equivalent
new item. Indemnity policies, which are often cheaper,
payout a reduced amount if you make a claim as they
take into account the wear and tear or the depreciation
in the value of an item. So, if you lost something you’d
owned for a while, you would get back the current value,
not what it would cost to buy new.
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* 1. Not all protection policies can be written in trust.
2. If the policy includes Critical Illness writing the policy can be more complex. Your adviser will be able to help with this.
Help is at hand
Although there’s a lot to think about when insuring your
home, you’ll be surprised at how much easier it can be to
get the right policy in place if you get some good advice.
The key to getting the right home insurance in place is to
focus on the features, not just the price, and with your
adviser’s help you can get the most cost-effective deal
for your needs.
As your circumstances are likely to be subject to change
year-on-year, your adviser will be on hand to ensure your
home insurance needs continue to be properly covered
at all times.
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We can give you peace of mind
As this guide demonstrates, there is a range of different
protection cover which is available to protect you and
your loved ones from life’s unfortunate events. We can
give you advice on the right protection cover for you and,
if you decide to go ahead, arrange this for you giving you
one less thing to worry about. If you would like to know
more or would like to arrange an appointment with an
adviser who can help you, please get in touch.
Contact
01908 382406
[email protected]
www.bricksandmortgages.co.uk
Bricks and Mortgages Ltd is an appointed representative of The Right Mortgage Ltd which is
authorised and regulated by the Financial Conduct Authority.
Registered in England and Wales, Company no. 11726935.
Registered Address: Registered Address: The Stableyard, Vicarage Road, Stony Stratford, MK11 1B
Where we cannot provide advice ourselves on these products, we will refer you to a specialist adviser
