Lockhart Grey Financial Planning Ltd

The financial burden of having a critical illness or dying prematurely can be disastrous on the surviving partner and family.

Approximately 40% of adults do not have any life or critical illness assurance in place to protect their loved ones in a time of need.

1 in 4 adults will suffer a critical illness before the age of 65
1 in 3 people are at risk of developing cancer before the age of 65
“Approximately half of all deaths in the UK are caused by cancer or heart disease” – Office of National Statistics
“More than 1 in 3 people in the UK will develop cancer at some time in their lives” – Cancer Research UK

But of course it will never happen to you!

Some questions that you need to ask yourself…

1. If you die prematurely, who would be affected?
2. How will your mortgage be paid?
3. How would your family cope without your income?
4. What plans do you have in place to cover this?
5. What would your family or dependants have to give up?
6. If you are unable to work, how will you pay your mortgage and other bills, and what would you have to give up?
7. If you suffer from a serious illness or accident, who would be affected?
8. How long would your savings and cashed-in investments last if you lost your income?
9. Is this important enough for you to review further?

So what Protection exists to help protect your loved ones?

Payment protection insurance is a broad group of insurance products that provide similar benefits.

The most common types of payment protection:

• Mortgage Payment Protection / Unemployment Cover
• Income Protection Cover
• Loan Payment Protection
• Life Cover / Critical Illness Cover

The benefits of the first three products are virtually the same.  Each offers relatively short-term assistance for workers (typically 12 to 24 months, depending on the individual plan) losing their employment or income because of involuntary accident, sickness or redundancy. A common term used is ASU which stands for Accident, Sickness & Unemployment.

Although the basic aspects of the payment protection products are the same, there are some differences in purpose and features of each.

Income Protection Cover (Permanent Health Insurance)

Income protection cover is intended to be a monthly income supplement to help replace a large portion of lost job income or where the policyholder is unable to work due to incapacity.  It does not provide full income protection for the normal amount, but it does cover a good amount, up to a certain percentage of the policyholder’s income and the providers’ set limits.  Many people rely on the income payment support as their only source of temporary unemployment cover.  The State has largely withdrawn from any type of unemployment protection, as any financial assistance they do provide will often be very little, plus you need to meet strict criteria in order to be eligible. This leaves redundancy protection and protection against being out of work due to accident and illness in the hands of the consumer.

The income payment protection insurance that is part of the payment protection insurance portfolio of products is sometimes confused with a completely different type of income protection insurance.  The reason for the confusion stems from the synonymous use of names and terms in discussion of the products.  Income protection is a longer-term, higher premium insurance product that sometimes pays benefits up to retirement for some people and will typically cover incapacity only.  This is different from the short-term nature of the payment protection covers.

Mortgage Payment Protection

Mortgage protection insurance is very similar to income payment cover, but it does have a slightly different purpose.  Mortgage protection is intended to help assist the insured through coverage of the monthly mortgage obligation.  For most people, their mortgage is the most important financial obligation because their homes are secured by it.  Failure to meet mortgage repayment guidelines can result in home repossession.  Many homes have been saved by the assistance provided by mortgage insurance cover.  Mortgage protection insurance is routinely sold in combination by banks and lenders, but this packaging of loans and insurance has come under fire in recent years.

Loan Payment Protection

Loan protection insurance is the third of the common payment protection insurance products.  It is very close in nature to mortgage protection, but again, its purpose is somewhat unique.  Loan protection is typically there to help cover full monthly debt obligations.  As revolving debt and credit card balances continue to rise in the UK, consumers need stable income to help repay their debt obligations.  Loan insurance is intended to cover monthly debt (and often includes a provision for an income supplement to help with some basic monthly expenses).  As with the mortgage protection and unemployment cover plans, loan protection is regularly sold in combination with loans by banks and lenders.

The process of packaging loans with payment protection has long been the practice of many banks and High Street lenders.  In recent years, this process has drawn the rightful attention of consumer advocate groups who argue that some mis-selling practices are prevalent in the industry which put consumers at an unfair advantage.  For instance, some lenders pressure borrowers into believing they have to buy the insurance protection to get the loan they desire, and this unfair process was address in the latest Consumer Credit Act to but the burden on these lenders to prove that PPI was fair and appropriate.

Lockhart Grey can select and source Life Cover, Critical Illness Cover, Mortgage Payment Protection, and Income Protection Cover.