It has been come time since I last posted to shrewdcookie. I am working on new articles and they will be going live shortly.
It has been come time since I last posted to shrewdcookie. I am working on new articles and they will be going live shortly.
Just a quick post as I am off for the long Bank Holiday Weekend, but I have been reading an interesting post by Lee over at FivePencePiece on the need for Compulsory Financial Education in our schools.
I wholeheartedly agree with Lee – we received not a single piece of guidance on personal finance whilst I was at school. it is quite obvious that the general level of financial education in the UK is low. Please read Lee’s article and support his efforts.
The cost of a UK passport is to rise – by acting now you can save money on this necessary purchase – every penny counts in the current economic climate.
The cost of a 10 year adult passport will rise from £72.00 to £77.50 – a rise of £5.50 or 7.64% of the current price. This increase in price is due to come into effect on 3rd September.
The cost of a child’s passport will also rise – from £46.00 to £49.00 – a rise of £3.00 or 6.52%.
There is therefore a saving to be made by renewing or applying for a passport ahead of this price increase date on 3rd September 2009.
Did you know?
You do not have to wait until your passport expires to renew it – within 9 months of it expiring, any unused time will be carried over onto the new passport – renewing your passport.
More information on the price rise here.
Although it’s not a large monetary saving, renewing or applying for your passport before the 3rd September will save you from incurring the large, above inflation increase in passport price.
Waiver of contribution is one of those options usually available under a life insurance or critical illness plan which many people may not be aware of.
It may be mentioned by the financial adviser when the sale is being made but often it is not included for one reason or another.
What is Waiver of Contribution?
Quite simply it allows the premiums (or contributions) to be “waived” on a life insurance or critical illness plan in the event of the life assured not being able to work through accident or sickness.
There is usually a “deferred period” before this option kicks in – normally in the order of 3 months. After this period, if you are still off work then the benefit of the waiver starts and you no longer need to make regular payments into the plan.
This benefit continues until one of the following events occurs – return to work, make a claim under the policy or the policy ends.
So why is Waiver of Contribution so important?
Consider the situation – you have not worked for a long period of time due to ill health – it must be serious to keep you off work for such a long period of time.
It is at times like this that you actually need the life insurance or critical illness cover more than ever – it is also at times like this that you may not be able to afford to continue paying premiums, either through an increase in expenditure (medications, treatment, partner losing time from work to look after you etc) or a decrease in income.
Waiver of contribution gives peace of mind that your protection arrangements can remain in place at the time that you most need them to be in place.
Always consider the benefits of adding waiver of contribution to any life insurance or critical illness plan you take out.
Have you made a claim under waiver of contribution? If so, please let us know of your experience below.
In this article we will compare income protection insurance to critical illness cover and consider how they can be used together to protect your financial position.
Critical Illness Cover or Income Protection?
Many people ask whether it is more appropriate when considering insuring against ill health to take out income protection insurance or critical illness cover.
We think the confusion arises as many people seem to believe that the two types of insurance do the same job and fulfill the same need. Before considering this in more detail lets just recap on what each type of insurance is and how it works.
Income Protection Insurance
Income Protection Insurance, previously known as Permanent Health Insurance (PHI), is designed to provide the person covered with a replacement income in the event that they are unable to work through accident or ill health. It is not to be confused with ASU (Accident, Sickness and Unemployment) which generally pays out a benefit for a maximum term of 12 months.
After a deferred period (period between telling the life company about the illness and the cover commencing payout) the regular tax-free income is paid to the life assured until the earlier of return to work, death or retirement.
The income can be level or indexed, i.e. it increases each year, either in line with RPI or a fixed percentage, to maintain the real value of the policy.
Critical Illness Cover
Critical Illness Cover (CIC) pays out the sum assured when the life assured is diagnosed as suffering from one of a range of critical illnesses.
Cover is normally provided for a “core” range of illnesses as set out by the Association of British Insurers Statement of Best Practice – covering such illnesses as cancer, stroke, heart attack, kidney failure, major organ transplant, multiple sclerosis and coronary artery bypass surgery.
In addition to this, the majority of policies also cover “additional” conditions such as blindness, coma, loss of limbs, loss of speech, Parkinson’s disease, benign brain tumour, paralysis, terminal illness, third degree burns to name but a few.
The policy can be taken out for a fixed term or whole of life on a single or joint life basis
Income Protection and Critical Illness Cover – complementary policies
To put this into context we need to consider the following basic points of each type of cover: –
1. Income protection = regular income if unable to work through accident or sickness
2. Critical Illness Cover = lump sum payment on diagnosis of one of a number of critical illness conditions.
It is therefore possible to see that depending on the nature and severity of the illness it might be possible for the policyholder to claim one or both policies.
Off work sick – but not critically ill
An illness may be severe enough to prevent you from working (thereby making a claim under the income protection plan) but not one of the listed conditions for claim under the critical illness plan.
Critically Ill but able to return to work after treatment
An illness may be critical e.g. cancer, but not such that in the event of successful treatment of the condition it is feasible that the life assured could return to work after a period of time maybe a year or so – but not long enough to really benefit from making a claim under an income protection plan.
The income protection plan may also provide proportionate benefit in that if the life assured returns to work on a lower salary as a direct result of having suffered their illness they may be entitled to continue receiving some of the benefits payable under the income protection plan
In conclusion, we would consider critical illness cover and income protection insurance to be complimentary in their nature and therefore it would be wise to consider taking out both types of insurance.
Naturally you should consult an Independent Financial Adviser before purchasing either of these types of insurance as they will be able to research the marketplace for you and make suitable recommendations based on your own particular circumstances.
We would welcome any comments you wish to make below.
Many people have heard of income protection – yet many remain unsure exactly what it is and how it can be used to protect their family and themselves.
What is Income Protection?
As the name suggests, Income Protection Insurance, previously known as Permanent Health Insurance (PHI), is a type of insurance which is designed to replace lost income in the event of long term illness or accident.
Unlike Mortgage Protection Insurance and ASU cover, which usually pay an income limited to 12 months, Income Protection Insurance is designed to pay replacement income right up until retirement in the event of the claimant being unable to return to work.
How much Cover can I get?
Life companies will normally cover you for between 50% and 60% of your pre-disability income. In the event of a claim they will normally deduct any continuing income or state single person long term disability benefit.
A claim once in payment under an Income Protection plan is normally paid free of UK income tax.
Under what Circumstances will a Claim be paid?
This is dependent on the basis on which the plan was originally set up: –
Own occupation – pays out if unable to perform your own occupation as disclosed on the application form
Any occupation – pays out if you’re unable to work at any occupation, normally based on work in line with your education and training
Activities of Daily Living – this type of plan pays out if you are unable to perform a number of task – such as eating, dressing, using the toilet etc – you need to be unable to perform a number of tasks from a range of tasks stated by the insurance company – e.g. any 2 from a range of 6 tasks.
Own Occupation cover generally carries the highest premium rates – and may not be available for riskier occupations e.g. working at heights, with explosives, dangerous occupations etc.
How Soon Can I Claim?
You normally submit your claim as soon as you stop working. The payout on the plan will not start until the end of the “deferred period” – you choose this at application – e.g. one month, three months, six months, twelve months.
Warning – the deferred period can in some instances commence from the date of notification to the life office, NOT the first day of sickness – make sure you don’t wait too long to tell them of a claim.
Naturally the longer the deferred period, the lower the premium, since you are less likely to make a claim on the policy.
What About Inflation?
You can set up your plan to allow for annual rises in the cost of living and most people opt for this benefit – your level of cover generally rises each year with a corresponding rise in the monthly premium to offset the general increase in the cost of living over time.
What About if I am Well Enough to Return to Work?
Normally your claim stops but you carry on paying premiums and your policy continues – the insurance doesn’t end.
There are various options under these plans which may be available: –
Proportionate benefit – if you returned to work in a lower-paid position as a result of your illness then a proportion of the benefit may continue to be paid
Rehabilitation benefit – if you returned to work after a period of illness and your income falls, then this benefit may pay a proportion of your cover to cover the loss of income and this benefit normally pays for up to 12 months.
Linked Claims – if you return to work following illness, and subsequently have to stop working due to the same condition then this benefit means you don’t have to go through the same deferred period again and the claim payout can recommence without delay.
Choosing a Policy
We believe that income protection insurance is vitally important for all individuals – especially those who do not have any cover through their employment and, in particular, the self-employed.
Most people are dependent on their incomes – simply ask yourself this question – “how long can we survive with no income?”
Naturally every policy is different so it is therefore important to take advice from an Independent Financial Adviser.
In our next article we will consider this type of cover in more detail and the practical uses to which is can be put
Please share with us your experiences and thoughts on income protection insurance below.
Many people today are not only insuring themselves against death but also against critical illness.
What is Critical Illness Cover?
As the name suggests, critical illness cover pays out a tax-free lump sum in the event of diagnosis of a critical illness. In order to claim, the life assured needs to be diagnosed with a critical illness listed amongst those covered by the life insurance company.
Which Illnesses are Covered?
Most providers today provide cover for a comprehensive range of critical illnesses. The Association of British Insurers has published standard definitions for critical illness policies to which most life insurance companies adhere.
There is a “core” range of conditions covered which are:
Coronary Artery By-Pass Surgery
Major Organ Transplant
In addition to this group of “core” conditions there also exists a range of “additional” conditions.
Aorta graft surgery
Benign brain tumour
Heart valve replacement or repair
Loss of limbs
Loss of speech
Motor neurone disease
Third degree burns
Not all life insurance companies will provide cover for all illnesses; they may indeed provide cover for illnesses which are not listed.
The important thing to bear in mind is that a claim is payable based on diagnosis and acceptance by the life insurance company. Should you subsequently be cured of the condition you have claimed for then there is no need to repay the sum assured which has been paid out.
Why should I take out Critical Illness Cover?
With advances in medical science it is now more likely than ever that you may be successfully treated for a number of critical illnesses which only a few decades ago would have been fatal. The question you need to ask yourself is, how would you cope financially if you were to “die just a little”. Here are some of the uses to which a payment from a critical illness policy could be put:-
Repayment of loans and mortgages
Replace lost income (especially if self-employed)
Treatment and convalescence
Cover salary of spouse/partner who takes leave from work to care for you
Pay for amendments to home e.g. downstairs bathroom, wheelchair access
The list is endless and needs to be considered in respect of your own personal and family situation.
What types of Policy are Available?
Critical Illness cover can be taken out on a term or whole of life basis, providing cover for single or joint lives assured. It can be taken out alongside life insurance, or as a stand-alone policy in its own rights.
Another option available is a “family income policy” by which the policy pays an annual income in the event of a claim – e.g. A 20 year plan for £30,000 per annum – successful claim in year 7 – the plan pays £30,000 per year to the claimant until the end of the 20th year.
As more and more people take out critical illness cover, the level of claims has risen. For example, Legal and General recently published its claim figures for 2008 which showed that they paid out total claims of £146 million, with 93% of claims being accepted and their average claim being £70,000. More information on this can be found here.
Getting the Best Deal
When buying critical illness cover it is important to remember not to buy it based on lowest premium – you need to compare the different types of cover available, the conditions covered (together with definitions) and the claims experience of the various life insurance companies. We strongly recommend that you take Independent Financial Advice in this area before making a purchase.
Our next article on critical illness cover will consider further the benefits of such plans and the different purposes to which critical illness cover can be put.
We would welcome your comments on critical illness cover – do you own any? have you claimed on a policy?
Term assurance is the most basic form of life assurance. As the name suggests, the policy runs for a fixed term.
There is no investment element to a term assurance policy – it is pure insurance – unless you make a death claim then the policy ends at the end of the term and you get nothing back.
Types of Term Assurance
Essentially there are three types of term assurance.
Term only – this provides cover for a fixed term, and if no claim is made, cover ends at the end of the term.
Convertible Term – this is a term assurance policy with a fixed term, but also included is the option to convert to “whole of life” assurance at any time during the plan. The conversion normally occurs without any further medical underwriting; assuming the same level of cover is applied for.
Renewable Term – again a fixed term contract, but with the option to renew a for a further identical term at maturity
How can they be set up?
It is possible to have single life and joint lives assured. So, for example, a husband and wife could take out two single life plans or a joint life, first death plan. With a joint life plan, on first death the proceeds from the policy are normally paid to the surviving life assured.
It is possible to take out two single life term plans, and write them under a suitable trust, for the benefit of spouse and/or children. The benefit writing a single life plan in Trust is that the proceeds from the policy do not enter your estate, where they could be delayed in being paid out, for example to redeem a loan or to provide for your children, due to the need to obtain probate which can take up to and sometimes in excess of 6 months.
We will cover more on Trusts and their uses in a later article.
When do they pay out?
As well as paying out on death of the life assured, modern plans may include “terminal illness” benefits – what this means is if you are diagnosed with an illness which, in the opinion of medical professionals, reduces your life expectancy below 12 months then the plan will pay out the sum assured ahead of your death.
The benefit of this is that you then have time to ensure the proceeds from the policy are used for the purpose which you intended and allow you to get your affairs in order ahead of your passing.
It is possible to set up plans in a number of ways: –
Level cover – the sum assured (amount of cover) remains constant throughout the term of the plan
Indexed cover – the level of cover increased each year, in line with a fixed percentage, to maintain the real purchasing power of the sum assured
Decreasing cover – often taken out at the same time as a repayment mortgage – the level of life cover decreases over time in line with the mortgage profile.
In the next part of this article we will consider the various options which can be included within a term assurance policy as well as the different uses and some special types of term assurance which are useful financial planning tools.