PERSONAL PROTECTION

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Personal protection insurance provides a sum of money to protect you and your family should you die or be diagnosed with a terminal illness. It helps your family make financial provisions in the unexpected event and pays out a lump sum in the event of the insured person dying. Its one of most important things you can ever do is making sure you have the right levels of personal protection. There are lots of different types of insurance which you can take out to protect you in case of unexpected financial difficulty but there are generally 3 kinds of personal protections you can take.

1) Life Insurance:

Life Insurance (sometimes known as Life Assurance) can help with the financial impact that your death could have on your loved ones. If you die or are diagnosed with a terminal illness during the length of the policy, it could pay out a cash sum. It is designed to reassure you that your dependants, such as your children or a partner, will be financially looked after in the event of your death. It provides your family financial protection should you pass away within the policy term by leaving a lump sum behind which helps your loved ones maintain their living standards. It can also be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person. You monthly premium cost for life insurance depends on various factors such as, your age, health, lifestyle and how much cover you need and the type of policy you have. 

Key Points of life insurance: 

    • At a terrible moment in time, life insurance can help you take care of the financial uncertainties your family will likely endure after you’re gone. Financial obligations such as mortgage repayments, everyday living expenses, funeral costs, children’s education fees, and debts.
    • If you have a partner and want to make sure that your other half and children will be looked after if one of you should die then you can also take a joint life insurance policy. It insures two people at the same time and pays out if one of you passes away.
    • Cover usually runs for a fixed period of time, known as the ‘term’ of your policy, such as 5,10 or 25 years and it only pays out if you die during the policy.
    • For the contract to be enforceable, you must disclose any past and current health conditions and any high-risk activities.
    • There are three kinds of term life policies. Level Cover which pays out as a lump sum if you die within the agreed term and the level of cover stays the same throughout. Decreasing cover is the level of cover which reduces each year. It’s designed to be used with repayment mortgages, where the outstanding loan decreases over time and Increasing term life insurance which pays out more over time to account for higher living costs. Its designed to keep up with inflation.
    • Life insurance is designed to pay out a lump sum when you die but with most policies, a pay out is also made if you’re diagnosed with a terminal illness with a life expectancy of less than 12 months.
    • Payments are not classed as income, so you will not have to pay any income tax on the money you receive from your insurer, however your loved ones could face a potential inheritance tax bill. 
Life insurance exclusions:

If you don’t keep up with payments, your cover will usually be cancelled and If you die because of the following, you typically won’t be covered:
 
  • Suicide or self-harm within a specified time of the policy start date, typically 12 months of the start of your policy.
  • Pre-existing medical conditions, if you don’t declare them at the start of the policy.
  • Dangerous activities or High risk activities if you don’t declare them.
  • Drug or alcohol abuse.
Family Income Benefit:
 
Family income benefit is a cost effective way to help your loved ones pay the bills when you are no longer there to help them yourself. If you die then instead of a lump sum, it pays out a regular monthly income to your beneficiaries until the policy’s expiry date. At the outset you need to figure out what sort of income would be needed to your family to be financially stable should you pass away. It could be a useful option when it comes to things like budgeting.
 
Whole of life insurance:
 
This type of insurance covers you for the whole of your life, rather than a fixed period of time. You pay into a policy, and the insurer agrees to pay your loved ones in the event of your death, no matter when that might be and for as long as you live, you will continue paying premiums. For some people whole of life insurance is the preferred option because they can ensure that their funeral costs will be covered or used for Inheritance Tax planning. However, they’re typically more expensive than shorter term policies and there’s also a possibility that if you live longer than you expected, you could end up paying more in than you’ll get out. The main difference is that whole of life insurance lasts for a policyholder’s lifetime, as opposed to term life insurance which is for a specific amount of years.
 
 
2)    Critical illness Cover:
 
If you are diagnosed with a critical illness, it can have a severe impact on your finances as you may need to take time off work for your treatment and recovery. It is designed to help you by paying out a lump sum payment when you are diagnosed with one of the specific critical illnesses covered by your policy. It’s a tax-free, one-off payment which can be used to pay for your treatment, mortgage, rent or changes to your home, such as wheelchair access, should you need it. The specific conditions covered by a critical illness policy will depend on the type of cover you take out and what your insurer offers, but certain core conditions are always included. The most comprehensive policies can often cover between about 40 and 50 conditions.
Examples of critical illnesses that might be covered include:
  • Heart attack
  • Certain types and stages of cancer
  • Stroke
  • Deafness and blindness
  • Major organ transplant
  • Parkinson’s disease
  • Alzheimer’s disease
  • Loss of limbs
  • Multiple sclerosis
  • Traumatic head injury
  • Permanent disabilities
  • Children’s critical illnesses possibly covered
Critical illness cover is often sold alongside life insurance  for extra cost to your premium or it can be bought as an independent policy, which will provide you and your family with financial help if you develop a serious health issue.
The main difference is, critical illness cover pays out on diagnosis whereas life insurance pays out if you pass away.
 
 
3)     Income Protection:
 
Many of us would struggle to keep on top of our essential outgoings such as mortgage and rent, if we lost an income due to illness, accident or disability. Income protection pays out a regular income if you can’t work and continues until you return to paid work or you retire. Depending on your needs you can take, long term policies which usually pays out until retirement, death or your return to work (or) you can take, short term policies which can last for one or two years at a lower cost. You can then use the money to cover debt repayment, bills and other costs. You can’t normally claim income protection payments straightaway if you fall ill or become disabled because there’s often a pre-agreed waiting period called Deferred period, before the payments start. The most common waiting periods are 4,13,26 weeks but can be 1 or 2 years. It is also because you may not need the money straightaway as you may get sick pay from your employer or you may be able to claim statutory sick pay for up to 28 weeks after you stop work . The longer you wait, the lower the monthly premiums will be. Some important factors in your premium costs are, your health whether you smoke, level of cover needed and your type of job plays a major part in determining what you’ll pay. The cost will also depend on whether you pay a standard premium, which the insurer can increase over time, (or) a guaranteed premium, which remains fixed for as long as you have the policy. Also, an important thing to remember is that it will only cover a percentage of your income that you specify when you take out the policy which could be up to 50-65% of your salary.
Income protection only covers events beyond your control and you’re much less likely to be covered, if you’re fired from your job or if you injure yourself deliberately.
Only a minority of employers support their staff for more than a year if they’re off sick from work and given the low level of state benefits available, everyone of working age should consider income protection.
 
Mortgage payment protection insurance:
 
If you lose your job or are unable to work through accident or sickness, mortgage payment protection insurance will cover the cost of your mortgage repayments. This is usually for 12 months or whenever you can return to work, whichever happens first. There are usually three types of Mortgage payment protections available:
  • Unemployment only: which covers you only if made redundant.
  • Accident and sickness only: which covers you only if you have a long-term illness or suffer a serious injury.
  • Accident, sickness and unemployment: which covers you if made redundant and if you have a long-term illness/suffer a serious injury. 

What is Trust?

Most insurers will offer it as an option when you initially take out the policy, and there should not be any extra charge for doing so. setting up your life insurance in trust ringfences your pay-out and eases the stress your beneficiaries will have to go through when dealing with your policy after you pass away. When assets are placed within a trust, you effectively give up ownership of them, they are now under the management of the trustees and are no longer classed as being part of your estate.
 
There are three main benefits of putting policy in Trust:
  1. Once you pass away, the pay out from the policy will not be subject to IHT, it’s because the insurance policy will be handled separately to your actual estate and so won’t be subject to inheritance tax if your estate is valued above the tax threshold.
  2. You don’t need to wait for the probate and the proceeds from the pay out should become available relatively quick.
  3. In Trust you have Trustees, who will make sure your pay out will go to the right people who you want it to go to.  
 At Crown Financial Ltd, we have number of insurers where we can take you to different options and advise you on the most suitable protection options for your budget.                                                                   

                                                                                                                                        Have a more specific question you need answered? Ask our mortgage experts by clicking the button below.                                                                                                                                                                 

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CROWN FINANCIAL LTD

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