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30 | Protection
take out to insure their mortgage repayments will also set out the criteria that have to be met her employer will pay her half a salary for 52
against sudden loss of income due to unemploy- weeks after the statutory sick pay period of 28
ment or health-related difficulties. circle6
before the insurer will pay a claim.
As an example, in the case of cancer, not all weeks. She therefore arranges for her policy to
State benefits do not normally cover mortgage cancers or stages of cancer are covered. And pay out after 80 weeks of incapacity.
interest during the first three months people are for heart attacks, the insurer will need to have
out of work, depending on your circumstances. medical evidence of the severity of the condi- Life insurance
However, you do need to be sure the insurance Life insurance is about providing some financial
cover is suitable for your client and their circum- circle6
tion before paying a claim.
CIC does not cover simply any sickness that security for people who depend on your client if
stances - especially if they are self-employed, on a affects your client’s ability to work – it is spe- they died. (So if they don't have a partner, spouse
fixed term contract, or have a pre-existing med- or civil partner, children, or other dependants,
ical condition. circle6
cific about which illnesses are covered.
Some insurers exclude all pre–existing condi- they may not need life cover.)
To keep the cost of the insurance down, there tions but others will decide on the basis of There are two main types of life insurance:
are some periods where your client will not be term insurance and whole-of-life insurance.
covered (you should check the individual policy circle6
your client’s personal medical history.
It's essential that your client gives full, honest Term insurance (also called term assurance)
for exact details). The main ones are an "exclu- answers to questions they are asked about both pays out only if your client dies within a certain
sion period" of up to 60 days when they first take their own and family medical history. Giving term, and whole-of-life insurance pays out
out the policy, during which any claim for unem- incomplete or wrong information could inval- whenever they die. Some whole-of-life policies
ployment would not be met (although claims for idate their policy and any claim they make on also contain an investment element to them, but
accident or sickness would be paid). In addition,
there is an "excess" or "waiting" period of up to circle6
it. such investment-type policies cost a lot more
Make sure you understand what the policy than protection-only insurance.
60 days for each claim, during which no pay- covers, when it will pay out and when it will Term insurance is the simplest and cheapest
ments will be made. not. type of life insurance, and is known as term
There are some circumstances when MPPI insurance because your client can choose how
will not cover your clients - for example, unem- Income protection long they're covered for, say, 10, 15, or 20 years
ployment caused by misconduct, or that they If your client is an employee and they fall ill, (the term).
knew was impending at the time they took out their employer might pay them their full pay for Term insurance only pays out if they die with-
the insurance. a few weeks or months. By law, an employer in the term they've agreed. If they live longer
Most people should consider taking out full must pay most employees statutory sick pay for than the term, they get nothing. As a couple,
MPPI, covering the full amount of the mortgage up to 28 weeks, though this will probably be a lot your clients can also take out term cover in both
payments following accident, sickness or unem- less than their full earnings. After that, they their names, with the policy paying out if either
ployment, but if your client already has other would probably have to rely on state benefits. of them die during the term.
cover -such as accident or sickness cover from If your client can't work because of illness or Whole-of-life insurance pays out an agreed
your employer, Income Protection or Critical disability, income protection insurance (also sum when your client dies, whenever that is.
Illness insurance, or substantial levels of savings - called permanent health insurance) pays out a These policies will cost your client more, partly
they may not need the full level of MPPI insur- tax-free income. because they will pay out whenever the event
ance. If so, they may "top up" their existing cover Example of working out how much cover your (death) happens, but also because of the various
(perhaps by taking out the unemployment-only client needs: charges that come with them. The cost also
element of MPPI), or they may decide that you Sue is single and earns £26,000 a year before depends on your client’s lifestyle: if they're a
do not wish to take out MPPI at all. tax and other deductions. She estimates that, if smoker and do a dangerous job, they'll pay more
she was ill for a long time, her budget would be than a non-smoking office worker. Life cover also
Critical illness cover affected as shown in the table below. costs more for men because, on average, they
Critical illness cover (CIC) pays out a lump sum Sue reckons she would need around £13,000 a don't live as long as women. Always compare
if your client is diagnosed with certain illnesses. year to maintain her lifestyle. This is half her what's covered by a policy, not just the price.
The illnesses covered will be specified in the poli- before-tax pay of £26,000. Some might be cheaper than others, but they
cy along with any exclusions – these differ Sue also works out that as a perk of her job, may not offer the same level of protection.
between insurers. CIC policies usually only pay
out once, so are not a replacement for income.
Sue's budget calculations in the event that she couldn't work Her estimates
Before you recommend this cover, there are
Income she would lose Her take-home pay £18,000
so
circle6
me things to consider:
Deduct income she would gain Approximate long-term incapacity benefit £4,000
Critical illness cover pays out a lump sum if
Deduct expenses Sue would saveWork-related costs, mortgage interest
your client is diagnosed as suffering from one
payments if covered by mortgage payment protection insurance £3,000
circle6
of the specified illnesses.
Add extra expenses she would pay Allowance for, say, cost of special
Policy summaries will often set out a list of ill-
equipment or treatment, cost of heating her home for more time £2,000
nesses covered, but this is only a guide and full
EXTRA INCOME NEEDED £13,000
details will be in the policy document. This
February 2009 Mortgage Introducer www.mortgageintroducer.com
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