Protections

Protect the future of you and your family 

Life Insurance 

A life insurance policy is a contract with an insurance company. In exchange for you making payments, typically monthly payments but not always, (or a lump sum payment) the insurance company agrees to provide a lump sum payment, known as a death benefit, to your loved ones (or whomever else you may choose) at the end of the agreed period. 

Periods of Insurance

In essence, there are two main events that most people think about when taking out life policies, the period of their mortgage and their death. What would happen if you passed away before your mortgage was paid or what would happen if you passed away unexpectedly and say your partner or spouse were left to raise the children or had to pay school fees and so on? 

 

In such circumstances, people think mainly about either: 

a) Term assurance, that is, a life policy for a fixed period of time, for example, whilst you have a mortgage; or 

 

b) Whole of life, that is, a policy that pays out when you actually die and not before. 

 

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The Whole of Life Insurance Policies 

The Whole of Life insurance policies, on the other hand, are policies that are guaranteed to pay out to your loved ones only after you pass away as a means of ensuring they are both financially secure and also able to manage any commitments you leave behind. 

 

As with term assurance policies, you can choose different plans depending on how you would like to pay your premiums. You can make payments up until the day you die, for a set period of time, or as a one-off sum. Your money can also be used as investments, which could create a higher return in the future. 

As a whole of life policy involves a guaranteed financial payout, they can be somewhat more expensive than term insurance policies, so you need to carefully consider which option best suits your needs. 

All policies are different and so it is vital that you check the small print of a particular policy before committing to it. 

Critical Illness Cover 

Critical illness cover is an insurance policy that pays out a tax-free lump sum if you are diagnosed with a condition that is listed on your policy. 

 

The critical illness cover provider that you choose will have a specific list of illnesses that are covered. If you are diagnosed with any of the conditions on that list, then your critical illness cover will usually payout. If you get an illness that is not on the list, you will not receive a payout.   

The illnesses covered need to be diagnosed, and serious such as cancer, a heart attack or stroke.  A policyholder is typically paid out a lump sum once their life-threatening condition has been confirmed by a medical professional.  Checking the policy wording is therefore absolutely essential as different policies cover for different critical illnesses and some payout sooner, some later. 

The lump-sum payout can provide valuable financial support and could be used to pay household bills, cover loss of earnings or pay for private medical treatment. 

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Term Assurance 

Term assurance policies can be thought of as a life insurance policy that helps give your family financial protection should you pass away during the policy term. It lets you leave a lump sum behind – helping your loved ones maintain their living standards or pay mortgage costs and so on. 

Some term policies pay out a lump sum of money not only if you pass away during the term but also if you are diagnosed with a terminal illness where you are not expected to live longer than 12 months.   

You can choose different plans depending on how you would like to pay your premiums. You can make payments for a set period of time, or as a one-off sum. Your money can also be used as investments, which could create a higher return in the future. 

All policies are different and so it is vital that you check the small print of a particular policy before committing to it. 

 

Types of Critical Illness Cover 

Typically, you pay a monthly or annual premium for the cover. 

There are three main types of critical illness cover:  

a) Stand-alone cover 

A stand-alone policy is one which is purchased regardless of, and independent of, any other policies you may have, such as life insurance. Therefore, for example, if you have life cover insurance and critical cover, if you get a critical illness, your critical illness cover pays out and your life insurance cover would continue. 

b) Combined cover  

In some instances, you can buy critical illness cover “built-in” to your life insurance policy and if that is the case, the cost of the critical illness cover is included in your life insurance premiums.  With a “built-in” policy, you get a payout if you die or if you get a critical illness. There is only one payout, so such policies tend to be a more affordable option than say two separate policies for life insurance and critical illness cover purchased separately. 

c) Decreasing term cover 

Decreasing term cover is a critical illness policy that pays out less and less as time progresses. This is usually linked to the amount left to pay on, for example, your mortgage.  Over time, you may consider that your financial needs lessen as for example, the amount outstanding on your mortgage and other debts decrease, and therefore the lump sum payout decreases to mirror that. For that reason, decreasing term critical policies tend to be cheaper. 

 
What is the difference between critical illness cover and terminal illnesses? 

Critical illnesses are serious ailments which may or may not be life-threatening. 

Terminal illnesses are incurable diseases where a person is expected not to live longer than within 12 months of their diagnosis.  

It is worth noting that most insurance providers will include terminal illness – which also could include illness or injury resulting in total and permanent disability – as part of their cover. 

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Income Protection

Income protection insurance (sometimes referred to as permanent health insurance) is designed to provide you with tax-free regular financial support (like an income, as opposed to a lump sum) if you need to take extended time off work because of illness or injury to avoid having to otherwise rely on savings, or on sick pay.  

Income protection is not the same as critical illness cover, (which pays out a one-off lump sum if you have a specific serious illness) as income protection policies are designed to cover most illnesses that leave you unable to work either in the more long term (depending on the type of policy and their specific definition of incapacity). Income protection is also not the same as accident sickness and unemployment (ASU) insurance as ASU is designed to only provide an income in the short term. 

The regular income protection payments ensure that you can continue to pay your bills and meet other financial commitments, allowing you to remain financially stable as you focus on what really matters - getting better. 

Most policies are designed to pay regular sums of money until you can start working again, or until you retire, die or the end of the policy term - whichever is sooner and provide for multiple claims over the term of the policy. 

The premiums will depend on your occupation, age, the percentage of your income that you will need to be covered and your current health.  

Every policy is different and will cover different conditions and levels of health and so as ever, if is essential that the wording of the policy is checked in detail to ensure that it meets your specific needs. 

Family Income Benefit 

Family Income Benefit works in a very similar way to life insurance. 

As with a life insurance policy, you take out cover for an agreed sum and pay the premiums. If you pass away during the term of the policy, your family receives a payout from the insurer. 

The major difference between life insurance and Family Income Benefit is how you receive the payout.  

With life insurance, your loved ones will receive a single lump sum but with Family Income Benefit the payout is paid like an income for the remainder of the policy term. 

So, for example,  if you passed away in year 10 of a 20-year policy, your loved ones would receive the agreed regular payments, like they would as though you were still alive, on a regular basis for the next 10 years, allowing them to keep up with the family outgoings and mortgage payments etc. and not have to worry about how those bills would be paid.  

Some policies cater for short term payouts and some for much longer – obviously, this will impact the premiums payable.

Young Family

Factors that affect Income Protection

Other factors that affect the premium are matters such as: 

a) Age 
The older you are, the greater the risk of passing away during the term of the policy and therefore the likelihood is that the premiums will be higher; 

b) Current state of health 
If you have severe health conditions, especially conditions that may limit life expectancy, the more likely you are to pay a higher premium for family income benefit;  

c) Smoker vs non-smoker 
Medical experts universally agree that smoking significantly increases the risk of developing a serious and potentially fatal health condition and so insurers will increase their premiums accordingly;  

d) Lifestyle and hazardous activities 
Lifestyle habits, such as regularly drinking more alcohol than is recommended, or participating in hazardous activities, such as skiing could result in an insurer increasing the cost of your cover;  

e) Family history 
If any of your family have suffered a serious hereditary illness or an illness, then premiums may be increased to reflect the increased risk to insurers.  

 

The important thing to remember is that every policy is different and will cover different conditions and levels of health and so as ever if is essential that the wording of the policy is checked in detail to ensure that it meets your specific needs. 

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Penn Financial Limited is authorised and regulated by the Financial Conduct Authority number 927714.  Please be aware that Commercial Mortgages, Overseas Mortgages and some Buy To Let Mortgages are not regulated by the Financial Conduct Authority. The guidance on this website relates to the UK regulatory regime and is targeted at UK based consumers.

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