Endowment policies are for a fixed
term, usually 10 years or more. The premiums are payable
throughout the term and are invested. At the end of the term
the policy matures and the proceeds are payable to the
policy holder. In the event that the policyholder dies
before the end of the term then a guaranteed death benefit
is paid out to the beneficiaries.
There are also
reducing term insurance policies which are often used to
ensure a mortgage is paid off in the event of death. In
these life policies the premiums are constant over a fixed
term but the sum assured payable on death reduces over the
term. The initial premium is less than for a fixed term
insurance policy because of the reducing amount. In the case
of mortgage protection the amount owing should also reduce
over the term so the life policy would always be sufficient
to repay the mortgage.
Critical illness insurance:
Critical illness insurance will cover you in the event of a
serious illness such as cancer, coronary artery by-pass
surgery, heart attack, kidney failure, major organ
transplant, multiple sclerosis and stroke. Additional
conditions covered by this insurance can include aorta graft
surgery, benign brain tumour, blindness, coma, deafness,
heart valve replacement or repair, loss of limbs, loss of
speech, motor neurone disease, paralysis/paraplegia,
Parkinson s disease, terminal illness and third degree
burns. Not all insurance companies will necessarily cover
all of these illnesses, whilst some insurance companies will
cover more; it is always worth reading the terms and
conditions before you sign anything.
Critical illness
insurance policies typically offer a tax-free lump sum if
you are diagnosed with one of the above illnesses and meet
the conditions outlined in the policy contract. The lump sum
is most often used to cover the remainder of the mortgage,
although can be spent on home alterations or medical care
etc.
Life insurance:
Life insurance is usually taken out if your family or partner is financially
dependent on your income. Life insurance can also be purchased as life
assurance and in this form, can offer a method of protection cover and
savings. However, most people simply use it as a form of financial
protection for their mortgage and therefore their family. There are three
main types of life insurance: term insurance, whole life insurance and
endowment insurance. More information can be found on these forms of life
insurance on the Association of British Insurers website, listed in the
resources section of this article.
Mortgage life insurance:
Mortgage life insurance is essentially the same as a decreasing (lump-sum)
term life insurance policy and is designed to pay out a lump sum upon the
death of the policy holder, should it occur during the term of the mortgage.
The size of the lump sum will decrease over the term of the life insurance
policy, in the line with the outstanding mortgage repayments. E.g. As you
pay off your mortgage, the amount of cover will decrease as the need is less
significant.
Mortgage protection:
Mortgage protection,
also called mortgage payment protection, is a type of insurance that can
help protect mortgage payments and associated household costs in the event
of unemployment, illness or an accident. Through mortgage payment
protection, you can insure your monthly mortgage payment, monthly life
premiums and the monthly cost of your buildings and content insurance.
Typical mortgage protection cover could include:
* Unemployment
and disability insurance cover
* Accident or sickness
*
Unemployment only insurance cover
* Disability only insurance
cover
Loan payment protection:
Loan payment protection
policies are designed to protect the repayments to any loans you may have
taken out. They work on a similar basis to mortgage payment protection, but
for a wider scope of borrowing. Premiums for loan payment may be greater
than those for mortgage protection.
Income protection:
In
the event of unemployment, sickness or an accident, income protection
insurance offers a limited income. Do make sure you understand the terms of
the policy however, as the income that you received through cover may be
significantly less than the income you receive through employment.
Private medical insurance:
Private medical insurance is a policy
which will provide financial cover for medical treatment in the event of an
acute condition. According to the Association of British Insurers, the
majority of insurers define an acute condition as a disease, illness or
injury that is likely to respond quickly to treatment which aims to return
you to the state of health you were in, immediately before suffering the
disease, illness or injury, or which leads to your full recovery.
Private medical insurance provides reassurance for people who know that
treatment is available promptly should they become ill or injured.
