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Protection insurance in the UK can provide invaluable financial security for individuals and their families.
Life insurance, income protection insurance, and critical illness insurance can all be available to residents of the UK. In this article, we will explore what protection insurance is and provide an overview of each type, including the benefits they offer and important considerations when choosing a policy.
Read on to learn more about how you can protect yourself and your family with these types of insurance.
What is Protection Insurance?
Protection insurance provides essential cover for sudden financial losses.
It is an increasingly popular way to ensure that you and your dependents can stay financially secure even in times of crisis.
By providing coverage for death, disability, illness or injury, the guarantee that protection insurance brings can be invaluable when faced with a difficult time.
Different types of protection insurance are available depending on your needs and budget meaning you can obtain tailored cover for yourself and your loved ones.
What are the different types of Protection Insurance available?
Protection insurance is a type of coverage designed to protect your family and key business personnel in the event of death, illness, or disability. Generally, there are three principal types of protection insurance available: life insurance; Income protection insurance; and critical illness cover.
In brief, life insurance is meant to provide a lump sum for your family in the event of your passing. Income protection insurance helps cover some of your lost wages during times of illness by making regular payments until you can return to work or reach the end of your policy period and finally, critical illness cover generally pays out a lump sum payment if you are diagnosed with specified illnesses such as cancer or a stroke.
Each type of protection insurance provides different levels and forms of coverage that all depend on what kind of plan is best suited to an individual or families circumstances, needs and budget. Read on to find out more details about each category of insurance.
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What is Life Insurance, who is it for and why should you have it?
Life insurance, related to a mortgage, is a type of coverage that can provide you and your family with security in the event of an untimely death. It is
typically designed to provide a one-off lump sum payment to clear off any outstanding mortgage in the event of a policyholder dying during the term of the mortgage but can also be
Life insurance of this type is not generally advised for mortgage holders who are single with no dependants but is recommended and suited to those with financial dependants such as spouses, partners and children in order to leave.
Having life insurance, therefore, provides peace of mind that if you were to sadly pass away, the people you care about most would have the option to not be left with the burden of any mortgage outstanding nor the potential of having to leave the family home if any mortgage became unaffordable without your income.
What are the main types of mortgage protection life insurance available?
Mortgage Protection Life Insurance is designed to provide financial security for mortgage holders and their dependents. Typically, there are two main types of mortgage protection life insurance available: level term and decreasing term.
Level term (LTA) allows mortgage payers to protect their mortgage with a fixed lump sum in the case of death which does not decrease in line with the mortgage amount outstanding, whereas a decreasing term (DTA) policy reduces the lump sum amount throughout the mortgage term as the mortgage is paid down.
Ordinarily, a level term policy would only be appropriate advice for any mortgage or portion of a mortgage that is being serviced only on an interest-only basis (i.e. the mortgage is not reducing over the term).
A decreasing term policy would generally be advised and most appropriate for any capital repayment mortgage. (i.e. one where the mortgage balance will reduce over the term of the mortgage)
In either case, mortgage protection life insurance pays out a lump sum in the event of death or illness during the policy period, providing financial support to mortgage holders and their loved ones in difficult times.
What Is Income Protection and How does It Work?
Income protection is an insurance policy that helps individuals maintain a proportion of their monthly income in the event they are unable to work due to illness or injury. It serves as a financial safety net to protect you and your family if your income from employment or self-employment was not being received when you were unable to work due to sickness or injury.
The policy pays out a pre-agreed amount – typically up to 60-65% of your normal income – each month for a specific length of time and can provide security for both individuals and families and avoid the necessity to use savings and/or other investments to support the individual or household when a previously regular income is no longer being received.
This makes it ideal for anyone who either does not have adequate savings to protect themselves or would not wish to have to use these to support themselves and their families should their source of income suddenly disappear due to illness or injury.
When such unexpected events occur, income protection is there to help you cover basic costs like rent or mortgage payments, utility bills and medical expenses; thus ensuring that financial stability is maintained in the face of unpredictable circumstances.
What are the things you should Consider Before Purchasing an Income Protection Policy?
Before purchasing an income protection policy, it is important to consider factors such as whether you are employed or self-employed, and accordingly how much (if any) sick pay your employer offers and for how long.
You should also take into account the amount of any deferred period that the policy allows and that you would be comfortable with – because this determines when payments begin after filing a claim. This figure can vary greatly between providers, so it’s worth making sure you understand how much money would realistically be available to you should worst come to worst.
In addition, it is important to consider how long you would wish to receive any income protection payments for. This will depend on how quickly you think you could obtain other forms of income or how much savings you may be willing to use in the interim. Will one year of coverage meet your needs, or would you need or want more robust payments for a longer period of time?
Finally, use some simple math to work out how much coverage you actually need to cover your regular monthly bills, commitments and general living expenses and ask yourself how would you meet all these if you were unable to work… this is where a suitably designed income protection policy can fill in the gaps, help maintain you and your families lifestyle and ease your mind that you are adequately protected should your income be affected by illness or injury.
What is critical illness cover, who is it for and why should you have it?
Critical illness cover is a type of insurance policy designed to pay out a lump sum if you are diagnosed with certain specified illnesses.
It’s a form of protection for anyone who wants to secure their financial future should they contract a critical condition. This could include cancer, multiple sclerosis, stroke and heart attack, among others. If diagnosed, the lump sum can help cover medical expenses, lost wages and other expenses – potentially including clearance of your mortgage if sufficient cover is in place – leaving you free to focus on your recovery.
This type of insurance is helpful to anyone looking for financial security, including individuals, business owners, and families. It can also provide peace of mind, giving you the financial security needed whilst you get back on your feet. Lump sums from critical illness policies can allow people time away from work to focus on their health without worrying about money.
All these reasons show why it makes sense for individuals and families to have critical illness cover in place and it is important to consider taking up such cover when planning for life’s unexpected twists and turns.
What are the typical Costs of a Critical Illness Insurance Policy and what can impact on these?
The cost of critical illness insurance varies greatly depending on a variety of factors, the most important being an individual’s own medical and family history. While an applicant may benefit from significantly lower premiums if they have no pre-existing medical conditions, existing medical conditions may require a higher premium in order to cover the increased risk of a claim. Additionally, various other factors can impact on the costs of a policy including lifestyle choices, overall health, age and the length and amount of coverage sought. Ultimately, understanding your risk profile and working with a trusted insurance advisor can help make sure you find a plan that fits both your budget and needs.
No matter what kind of protection you are looking to purchase, it is important to spend time understanding the various types of insurance available and weighing up the benefits of each. From life cover, income protection and critical illness cover – there are a variety of policies out there that can be tailored to meet your needs and provide financial security for you and your family. Spending the time to take advice and find a policy that best suits your circumstances can be invaluable, so make sure to seek out advice from experts whenever needed.
By investing in protection insurance now you are taking a positive step towards securing your financial future – no matter what life throws at you.
If you are considering your protection insurance needs, let Blue Fish Mortgage Solutions help. As an experienced advisor, I can provide tailored advice to find the right policy for you, your budget and your overall circumstances. Enquire today to see how we can help secure you and your financial future.
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