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The following information is a brief generic description, if you require further information, please do not hesitate to contact us.
Difference Between Assurance & Insurance
There are two common types of insurance within the insurance industry ‘Insurance’ and ‘Assurance’ for the purpose of this document we will refer to both as insurance. The difference between the two is as follows:
Assurance
Assurance means you are insuring for an event that will definitely happen one day - death or retirement.
Insurance
Insurance covers events that may happen, such as illness, accident, etc.
Building and Contents
Buildings
A lender usually requires you to have your building insured against deterioration and/or accidental damage, because the building is used as security for the loan and equally in your interest.
Buildings Insurance must be maintained under a Householders' buildings policy for a sum not less than that specified by the lenders' surveyor. The sum insured will be based on the rebuilding costs and will be increased in line with the House Rebuilding Cost Index.
Lenders will usually offer their own insurance arrangements. If you wish to arrange this insurance through ourselves or make your own arrangements you should be aware the lender will normally make a one off charge to cover their administration; usually between £25.00 and £50.00.
Contents
It is not a requirement from the lender to have your contents insured, but you might consider it’s in your interest to have the contents and any valuable item within the property insured against damage or theft.
Accident, Sickness and Involuntary Unemployment
We recommend that a mortgage payment protection insurance policy is taken out to protect your mortgage payment(s) in the event of accident, sickness or involuntary unemployment. It will provide you with a regular income to cover your mortgage payments and associated mortgage products if you were unable to work due to accident, sickness or involuntary unemployment. This cover is available for one or to a maximum of two years. A deferred period of non payment from the insurer is usually thirty days, but can be back dated to day one of your claim date if requested in the application form. Usually, the longer the deferred period the lower the monthly cost.
Life Insurance
Decreasing Term Insurance - also referred to as Mortgage Payment Protection Insurance (MPPI)
This type of insurance is usually taken out at the same time as the associated debt; this can be a mortgage, personal loan or any other form of financial liability. The debt must decrease in line with the insurance policy protection.
Capital & Interest Mortgage
The level of life insurance cover will decrease over the term of the insurance plan inline with the decreasing money borrowed from the lender over the mortgage term. It will pay the outstanding mortgage debt in the event of death of the insured person(s) during the mortgage term. There is no investment element to this insurance product, it provides life cover only. There are no other benefits.
Level Term Insurance
Interest Only Mortgage
This will repay your lender the agreed mortgage you have agreed to at outset or a lower amount of the outstanding balance should you have paid off some of the original capital borrowed in the event of your death during the mortgage term or your chosen period. If your mortgage account is greater than the agreed initial mortgage this life insurance cover will not repay the greater amount.
You can arrange this policy on a joint life or single life basis. Joint life policies are usually written on a first death basis; therefore, paying out once on the first death. Single life policies will insure you individually, which means that in the event of a claim on one policy the other policy remains in force. With a joint policy once a claim has been made upon first death this policy then ends. The overall premium for two single policies is usually slightly more expensive than for one joint policy, however you will benefit from being insured individually. There are no investment elements to these plans; they provide life cover only. There are no other benefits.
Income Protection - Permanent Health Insurance (PHI)
Income Protection policies pay a regular income if you are unable to work through sickness or accident to an agreed age or to your normal retirement age. If you return to work during the policy claims period this benefit ceases. If you suffer another sickness or accident you can make another claim. There is no investment element to this plan; it provides income protection only. There are no other benefits.
Critical Illness Insurance
This type of policy is available on a joint life basis, also, a combination of life and critical illness insurance.
A critical illness insurance policy provides a tax-free one off payment if you are diagnosed with a critical illness from a range of specified illnesses illustrated by the insurer’s literature.
If you are diagnosed having a critical illness during the insured period the insured amount is paid to you. This amount will help or repay any debts you may have; an example would be your mortgage, but if your mortgage or other debts are greater than the insured amount the insurance policy will not repay the greater amount. A consideration to an additional sum would be prudent if a claim is made during the insured period to cover or go towards unforeseen costs. There is no investment element to this plan; it provides cover in the event of contracting a critical illness only. There are no other benefits
Combined Life & Critical Illness Insurance
The life and critical insurance is described above. This type of insurance will usually pay out in the following manner
- Where death occurs the insured amount will be paid from the insurance company. The policy will then terminate.
- If you are diagnosed having a critical illness during the policy term the insured amount is paid to you. If death occurs after the diagnosis of a critical illness and after a period of time the insurance company will pay out the same sum insured again.
The amount paid from the insurance company will help towards or repay any debts you may have an example would be your mortgage, but if your mortgage or other debts are greater than the insured amount the insurance policy will not repay the greater amount.
Those insurance companies who offer this type of insurance product apply different conditions, please read their respective key facts and policy conditions for further guidance. There is no investment element to this insurance product, it provides life cover only. There are no other benefits.
Waiver of premium
Waiver of premium is where a monthly premium is paid in connection with an insurance product. Waiver of premium covers the insurance monthly cost up to an agreed age should you suffer a sickness, accident or disability after an agreed deferred period, usually three months. A deferred period, before the waiver of premium is exercised, can be one to twelve months. If you choose not to have ‘Waiver of Premium’ and you suffer a sickness, accident or disability you might be in a position where your usual income is reduced, you may find you are unable to support the monthly premiums and you stop paying them, your policy would then cease – commonly known in the insurance industry as a ‘lapsed policy’. A lapsed policy will terminate leaving you with no insurance cover to the relevant policy. There is no investment element to this product; it provides monthly payment insurance cover only. There are no other benefits.
Trusts
Where a capital sum is paid out, it can, but not always, attract Inheritance Tax (IHT). We therefore recommend where these insurance products are taken out they are written into trust. These insurance products fall under life insurance; and example would be, decreasing or level term insurance.
Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. |
