Life and Critical Ilnness Cover

Why Life Assurance?
Your mortgage is probably the biggest financial commitment that you will ever make. If the unthinkable were to happen to you, how would your family cope with a large debt and a reduced income?

For a relatively small monthly premium your dependants will not have to worry about paying the mortgage, or even worse, losing the house at such a difficult time - giving you complete peace of mind.

There are numerous plans available to suit individual requirements, such as:
• Level Term Assurance
• Index Linked Term Assurance
• Mortgage Protection
• Family Income Benefit
• Income Protection
• Payment Protection Insurance and Accident Sickness and Redundancy Cover
• Terminal Illness Cover
• Critical Illness Cover

Term Assurance is a life insurance policy which covers the life of a person in monetary terms in return for a payment, usually monthly, and known as a premium. Term assurance is the cheapest and simplest form of life cover, providing life assurance for a fixed term only. Policies can cover a single life or be on a joint life basis.

Among other factors, policy premiums usually vary depending on whether or not the proposer is a smoker or non-smoker. A non-smoker is generally defined as someone who has not smoked cigarettes in the last 12 months. Cigar and pipe smokers are sometimes classed as non-smokers. The rates also vary for male / female.

Level Term Assurance
Level Term Assurance is designed to provide a fixed amount of life insurance for a fixed number of years. The premiums are set at the beginning of the term. The sum assured is payable only if the life assured dies within that term. This form of cover is traditionally used for family protection needs and to cover ‘interest only’ mortgages.

Index Linked Term Assurance
The amount that would be payable upon death of a life assured under an Index Linked Term Assurance rises each year, usually in line with Average National Earnings or the Retail Price Index. In some cases, an insurer will allow you to choose a fixed annual percentage increase. The initial premium and the method of increase are determined at the outset.

Mortgage Protection
This type of policy is designed to repay the outstanding balance of a repayment mortgage in the event of premature death of a life assured (also known as Decreasing Term Assurance). The amount of the debt (and, therefore, the amount of life cover) reduces slowly in the early years. The premiums are determined at the outset and are usually guaranteed for the term of the policy.

Family Income Benefit
This is designed to provide an income, rather than a lump sum, to dependants in the event of a claim. The sum assured is specified as an annual income and this amount will be payable from the date of the claim until the policy maturity date. Payments can be made monthly, quarterly or annually depending on the policy. Many companies will allow the income to be commuted to a cash lump sum if required.

Income Protection
Income Protection Insurance is designed to replace lost income during periods of incapacity. Statistically, you are much more likely to suffer a serious illness that prevents you from working than you are to die before you retire.

This cover will pay you a tax-free income until you recover sufficiently to return to work or until the plan matures.

Claimants are not allowed to ‘profit’ from any period of incapacity so most insurers will limit the total amount of cover to say, 50% of your annual salary up to a specific salary (and 33?% over this amount).
If the policy is ‘index-linked’, the benefits and premiums will increase each year to keep pace with inflation.

This underwriting for this type of policy is very heavily affected by your occupation so you must notify the insurer if you change your job to ensure than cover can be continued. The cost of this protection will also depend upon whether you choose cover against the inability to perform your own specific occupation or the wider definition of any occupation.

Payment Protection Insurance and Accident Sickness and Redundancy Cover
This differs slightly from Income Protection in that it is designed to protect the monthly repayment costs on your mortgage or loan. This type of cover usually only provides protection for up to 12 or 24 months incapacity or unemployment.

Terminal Illness Cover
This benefit is included free of charge in virtually all life assurance and critical illness policies and pays out the sum assured immediately (instead of on death or critical illness) if the life assured is diagnosed as being terminally ill, with a life expectancy of less than 12 months typically. This cover does not normally apply during the last 12-18 months of the period of cover.

Critical Illness Cover
The aim is to provide a lump sum (or income if provided within a Family Income Benefit policy) if the life assured is diagnosed as having one of a number of specified critical illnesses covered by the policy. Cover can be arranged as a stand-alone critical illness policy or combined with a term assurance or other policy type.

Critical Illness cover is appropriate for anyone who would suffer financially if they were to suffer a critical illness, or become permanently and totally disabled.

Critical illness cover is suitable therefore for virtually everyone; for example, even if you are single with no dependents, should the worst occur, you would not have anyone else’s income to fall back on.

The state will provide some help in such circumstances - up to a point – but after 28 weeks of being too ill to work you will be assessed on your ability to do any type of work (even though you are unable to do your previous job, you may be well enough to collect trolleys at the local supermarket or work as a packer in a factory; in which case, your benefits may cease).

If you’re critically ill, the last thing you’ll need is any financial worry like the fear of losing your home because you can’t pay your mortgage. Critical illness cover aims to give you peace of mind in these circumstances.

Unlike Life Insurance, Critical Illness Plans pay out whilst you are alive (your greatest financial need may be when catastrophic events happen to you, not after you are dead!). A tax-free lump sum is paid that you can use for any purpose; for example, pay off your mortgage or make required modifications to your property.

Medical advances have improved our survival rate considerably and long term changes to lifestyle are usually inevitable, followed by financial consequences. You may be unable to continue working or have to change career, downsizing your income.

Yet despite these statistics, a surprising 93% of the working population don't have any form of serious illness protection. (Source Swiss Re: Healthwatch 1998).

Cover
Policies usually pay a tax-free lump sum if you suffer from one of the illnesses or conditions, or have one of the surgical procedures (collectively known as the ‘critical illnesses’), specified in the policy.

Do not confuse critical illness cover with other types of health insurance such as:
• private medical insurance which pays for the cost of private medical treatment; or
• income protection insurance which pays you a monthly income after you have been unfit to work (because of sickness or accident) for an agreed period. The income continues until you are fit to return to work or the policy ends.

Different policies cover different critical illnesses - each will only cover the conditions set out in its key features leaflet, and no others. However, all critical illness policies cover cancer, heart attack and stroke.

Be aware that the heading of each critical illness is only a guide to what is covered, for example, some types of cancer are not covered. Definitions are grouped into ‘core’ and ‘additional’ conditions. The ‘core’ conditions are generally the critical illnesses most likely to happen.

Some insurers may also cover other critical illnesses, for example total permanent disability, as well as some or all of those above.

Exclusions
Exclusions vary between insurance companies. Each key features leaflet provided by a financial adviser or insurance company will list the exclusions of that particular policy. Typically, these will include:

Comparing policies
Not all insurance companies cover the same illnesses or have the same exclusions. When you compare the conditions covered by different policies, remember that the core conditions listed on the previous page are the ones most likely to happen. So, cover for the core conditions is usually more important than cover for the others. The information in contained in the Key Features leaflet, available from each insurer for each policy, should help you to compare the policies of different insurance companies. It will show you the critical illnesses covered and the main exclusions. In addition, it will explain whether, for example, your premium may go up and whether you have to tell the insurance company if you change your occupation.

Types of policy available
A wide choice of policy is available. So it is important that you choose the policy and cover that is right for you. One option is to include critical illness cover as an extra benefit on a life assurance policy. This usually means that the policy pays out if you die or suffer a critical illness. These plans generally only pay out once and then end – so they don’t continue to provide life cover after paying a critical illness claim.

Many people want to protect their mortgage, and most mortgage plans allow you to include life cover and critical illness cover.

You may prefer to buy critical illness cover as a separate plan, for example if you already have all the life cover you need.

You should also think about how long you want the cover for. You can choose cover for a set number of years, perhaps until your mortgage is paid off. Or you can choose a plan that has no fixed period, so you can keep the cover for as long as you need it.

Many plans automatically provide some critical illness cover for your children. If you have a family, you may want to consider a plan with this benefit.

Cost and availability
The premium depends on your age, sex, health, occupation, whether or not you smoke, the amount and type of cover you need and how long you need the cover for.

Over the life of the policy, the premiums may increase. Any possible increases, and the reasons for them, will be explained in the policy’s key features leaflet. Some companies offer policies which guarantee never to increase the premium during the term of the contract.

Generally you must be in good health and aged between 18 and 60. Most insurers allow the policy to cover both you and your partner, in which case the company may only pay the lump sum when the first person becomes critically ill.

If you are suffering from, or have suffered from, a serious illness, you may not be eligible to take out a policy. Or you may be able to buy a policy that does not cover any critical illness directly or indirectly related to your illness, or a policy charging a higher premium. You may also have to pay a higher premium if certain conditions, for example, heart disease or cancer, run in your family.

Some companies automatically provide some critical illness cover for your children from the age of 3 or earlier. Insurers do not usually cover any illness or disability that a child had at birth or when the cover began.

Some policies allow you to increase cover to keep up with inflation or after certain events, e.g. if you get married. If you take up these options, you will usually find that your premium will also increase in line with the increased cover provided.

Others may allow you to increase the cover at any time, but you will generally need to provide up-to-date information (for instance, about your health) before the company decides whether you can have the extra cover.

An Endowment Policy
This is a savings policy which provides life assurance cover for a policyholder. The policy exists for an agreed term, the minimum term usually being 10 years.

A cash sum is paid out at the end of the policy term (on maturity), or in the event of the earlier death of a policyholder, either a predetermined sum (in the event of death) or an agreed capital sum on maturity. Bonuses are added to the policy, usually annually, and once added are guaranteed.

This type of policy has traditionally been used to repay an interest-only mortgage. On maturity the amount payable is the sum assured plus annual and terminal bonuses that have been allocated during the life of the policy.

A low cost endowment policy does not guarantee to repay a mortgage. However, most reputable life offices will check the performance of the policy ten years before maturity, five years before maturity and then annually to ensure that it is on target to provide the required sum. If a shortfall is likely, they will inform the policyholder of what action to take or options that are available.

Your Mortgage Options LLP is authorised and regulated by the Financial Services Authority for regulated mortgage contracts and non-investment insurance contracts.

We offer products from a range of insurers for home insurance, term assurance and critical illness protection. We only offer products from a limited number of insurers for mortgage payment protection insurance. Ask us for a list of the companies and products we offer.

We will advise and make a recommendation for you for life and critical illness insurance after we have assessed your needs. You will not receive advice or a recommendation from us for home insurance or mortgage payment protection. We may ask some questions to narrow down the selection of products that we will provide details on. You will then need to make your own choice about how to proceed.

We do not charge a fee for any non-investment insurance contracts. You will receive a quotation which will tell you about any other fees relating to any particular insurance policy.