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This section deals with the life insurance requirements for those who currently have, or are thinking of taking out a repayment mortgage, also referred to as a capital and interest mortgage.
If you have an interest only mortgage then the type of plan described below Decreasing Term Insurance would not be suitable.
If you have an interest only mortgage then to find out about a more suitable plan called Level Term Insurance which is designed to meet the life cover needs only.
Decreasing term assurance, or mortgage protection life insurance, as it is commonly known, has a sum assured which reduces each year (or possibly each month) by a stated amount, decreasing to nil at the end of the term. It is normally used to cover a reducing debt, such as the capital outstanding on a house purchase mortgage, although the cover decreases each year, the premium remains constant. Premiums are sometimes payable for a shorter period than the policy term itself, because otherwise there would be a temptation for the assured to lapse the policy in the last year or two, when the sum assured has reduced to a comparatively low level.
Premiums for decreasing term assurance are either slightly cheaper than for level term assurance for the same initial sum assured and term - or the same, but payable for a shorter period.
Decreasing Term also known as Mortgage Protection - provides lump sum payment, which decreases during the term of the plan. This type of plan is usually arranged to protect a Capital and Interest Repayment Mortgage
In this case, as the capital repayable is slowly reducing over the mortgage term in order that the balance owed reaches zero on the last day of the mortgage, it is sensible to have life cover whose sum assured payable on death is designed to reduce at a similar rate. Such plans are known as Decreasing Term Assurance or Mortgage Protection Plans. Because the life cover is designed to reduce over the term in line with the mortgage balance, the cost of this cover is the lowest of the plans on the market.
Critical Illness - is an optional extra under all Term Assurance Plans which allows for the lump sum to be paid not only on death, but also in the event of diagnosis of certain critical illnesses, such as Heart Attack, Stroke, Major Organ Transplant, Blindness, Total and Permanent Disability etc. Critical Illness can be provided on either a guaranteed or reviewable premium basis.
Critical illness cover can include debilitating but not necessarily fatal conditions such as heart attack or stroke, cancer, multiple sclerosis, loss of limbs, etc., and the cover pays a lump sum on diagnosis - not for treatment of the condition, as you would expect with a health insurance policy.
As with any coverage, it is important to be sure exactly which conditions the policy covers, and which it doesn't. A policy will be very specific as to the illnesses it will pay out for; critical illness policies can also range from basic coverage, which will include just the main critical illnesses such as cancer, to comprehensive policies that cover a more extensive range of conditions.
Full disclosure of any and all existing medical conditions and history is vital when arranging critical illness cover. Failure to disclose could result in denial of payment when an illness is diagnosed - just when that payment is needed most.
Guaranteed premiums offer the most security, as the premium charged for the cover will never change during the term of the policy, however they are the more expensive option.
Reviewable premiums are more affordable initially however premium levels are normally reviewed on a regular basis after the first five years and are likely to increase.
Terminal Illness - This benefit means that the sum assured will pay out if you are diagnosed as having less than 12 months to live - in simple terms an advance payout. The majority of term life policies include terminal illness as standard at no additional cost. Terminal Illness should not be confused with critical illness, which is an entirely different benefit.
Waiver of Premium - Premium payment protection, or waiver of premium. Waiver of premium benefit is available as an additional option on most protection policies including term life insurance, mortgage protection, family income benefit and critical illness cover.
If you are unable to work due to illness or injury the insurance company will continue to pay the premiums to your policy until you return to work or your policy finishes. The payment of your premiums begins after a set waiting period called a deferred period, which you choose when applying for your cover. This is called the 'deferred period' and can be 8, 13, 26, or 52 weeks long. The longer the deferred period the lower the cost of this option will be.
Waiver of Premium benefit typically costs between 3 to 5 % of the policy premium but may increase if you have a history of certain medical conditions or an occupation with hazardous duties. In some instances waiver can be applied for on both lives if applying for a joint life application, however this will increase the cost.
QUESTIONS & ANSWERS
Who Can Apply For Life Cover?
Anyone aged between 18 and 65 who lives in the UK.
Do You Offer Joint Life Plans?
Yes. We offer both joint and single life plans. If you both choose critical illness cover, then this will automatically cover you both. Alternatively why not compare the cost of two single life plans against the cost of a joint life plan. See next question below.
Is It Better To Get Joint Cover Or Two Separate Policies?
A joint policy will be slightly cheaper than two separate ones. But remember your joint cover will end if a claim is made. With two single policies, one isn't affected by a claim on the other. And single cover could prove more practical if you ever part company with the person you've got joint cover with.
WHAT ABOUT THE BENIFICIARY?
Most commonly, policyholders will name their spouse and/or their children as beneficiaries of their life insurance, while other family members may be an option for the unmarried and childless. Beneficiaries are not limited to family - a business partner is also a popular option.
Is Decreasing Term Insurance Suitable To Cover An Interest-Only Mortgage?
No, under a decreasing term insurancec the plan provides you with decreasing life insurance only (and serious illness cover if you've chosen to include this). It will only pay out if you make a valid claim. As the sum insured will gradually reduce during the mortgage term this makes this type of plan wholly unsuitable to cover the life insurance needed under an interest only mortgage. A more suitable plan to cover the insurance need would be a level term plan, please refer to the level term plan section.
Please note even though a level term plan is suitable to cover the the life insurance requirement. You should always have another means of repaying your interest-only mortgage, for example an ISA or other investment product.
As soon as the sum insured is paid out under a term policy then the plan ceases. If you survive the term and the sum insured has not become payable then the plan ceases and nothing is paid out, as this type of policy has no cash in value at any time.
What Is Waiver Of Premium?
For a small additional premium this option will ensure that in the event of long-term ill health either through sickness or accident you are unable to pay the premiums then after a short/deferred-waiting period the insurer will pay your premiums.
What Happens If I Stop Making Payments?
If you cancel your direct debit payments to the insurer your cover will stop. You won't be insured and no money will be returned to you.
What Happens If I Change My Mind?
Not a problem. You have the right to cancel your plan within 30 days of setting your cover up.
Do I Get Any Money Back If I Don't Die Or Fall Seriously Ill Before The End Of My Plan?
No. The plan provides life insurance only and there is no cash-in value at any time. It has no savings content.
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