General life insurance and income protection questions
Income protection is a long-term insurance policy that is designed to make sure that you have some cover for yourself and your family in case your family is left without a main earner to support them or you can’t earn for a while.
If you wouldn't be able to support yourself with sick pay, savings and alternative income, income protection could help support you with a regular income.
Permanent health insurance is another name for income protection.
Income protection is designed to pay out until you return to work or if you can't return to work, it pays out until the policy expires or you retire.
There is often a time period to wait for your income protection policy to kick in, known as the deferred period. This will usually be set up to coincide with when your work sick pay ends or when any other insurance stops covering you.
No. Income protection is there to essentially provide an income if you were unable to work due to illness or injury. Life insurance is paid out to your family if you die.
No. Life insurance will only pay out if you die and may pay out if you are diagnosed with a terminal illness, depending on your policy. Critical illness will pay out if you are diagnosed with one of the eligible illnesses covered by your policy.
Your adviser at Mortgage Advice Bureau will talk you through the different insurance types and products as no two people's cover needs are the same. They will also consider any cover you have now, your dependents, your needs and your savings amongst other factors.
The difference between these three types of policies are:
- Decreasing: the pay-out will decrease over the length of the policy.
- Level: the pay-out is fixed during the policy and will not change.
- Increasing: the pay-out will increase each year by a fixed amount over the length of the policy.
- Single life policy: This will only cover one person. If that person dies during the length of the policy, it’ll pay out a chosen amount.
- Joint life – first death: This type of policy covers two people and it will be paid out if the first person dies during the length of the policy. After the pay-out is complete, the policy will end. This cover could help protect dependents by paying off a mortgage.
- Joint life – second death: Similar to the above however it’ll be paid out once both policyholders have died. This cover could help with inheritance planning.
The younger and ‘healthier’ you are when you start your protection – the cheaper it will usually be. How health affects the cost of your policy is based on things like medical conditions you may have, whether you smoke and your height and weight. Your lifestyle, hobbies and job also play a part in how much your premium will be but it can start from around £5 a month.
The older you are when you apply, the more expensive your premium will be.
You will need some identification, home details such as your address, where your GP is based and sometimes the name of your doctor. Your adviser will ask you things such as:
- Financial situation.
- Workplace benefits such as sick pay.
- Savings or investments information.
- Health and lifestyle questions.
If you are part time employed or not employed at all such as a volunteer, a carer or a house person then you will still be able to take out life and critical illness and you may be able to take out income protection. Speak to your Mortgage Advice Bureau adviser for more information.
Yes, your job may affect your eligibility for specific protection policies as some occupations are seen as more dangerous than others and could incur higher premiums or not be eligible for life cover at all. These high risk or dangerous occupations are known as risk-bearing jobs and include roofers, tree surgeons, scaffolders, offshore workers and security workers.
If you have hobbies such as extreme sports like mountaineering, rock climbing or sailing or anything that involves being in the air such as hang gliding, your hobbies will be classed as high risk and will affect how much your life and income protection will cost you.
A medical examination is not required in most cases if you are in good health. They will contact your GP if they want to have a look at anything in particular but this only happens in a small number of cases.
The adviser will ask you questions such as, but not limited to the following:
This will include your average monthly expenditure including annually or monthly paid costs. This will also include any debt or loan repayments that you may have and any money you need to put to one side for unexpected expenses.
As we have previously mentioned, some employers will offer sick pay that is equal to or similar to your usual salary. Your life and income protection provider will base their policy on your sick pay and how long it will last you. For example, if your employer offers you 6 months full pay then your income protection or MPPI (Mortgage Payment Protection Insurance) policy won’t begin to pay out until after the 6 months have passed.
Your adviser will ask you how your lifestyle would change if you suddenly couldn’t work. This includes things such as changing leisure activities, entertainment costs, school and further education costs, caring for elderly parents and employee benefits such as company cars. This is so they can get a better picture of your life and what cover you would need.
Your adviser will also ask you if you have any other income streams that you could use to support yourself such as rental properties or part time business ventures.
If you have to make a claim on your life and income protection, the first thing to do is contact the company that you have your policy with. You will need to have all the paperwork together to do with your policy. If you are claiming on a life cover policy for someone who has recently passed away, this will include the death certificate which shows the cause of death.
To make a claim you will need to contact your insurer and then complete the form they send to you. If you have any questions whilst filling out the form and getting your paperwork together, contact your provider to talk you through the process. The claim will be delayed if the paperwork or forms are not correct.
Visit our estate planning hub to find out more about Wills and what happens when someone dies without a Will.
If you would not be able to cover your mortgage payments if you were no longer able to work, mortgage protection could be beneficial to your financial wellbeing. You will be familiar with protecting your car, home and its contents with insurance. Your mortgage is arguably one of the largest financial commitments that most people make and MPPI can help you protect this too. Events that could prevent you from paying your mortgage if you cannot work are:
- Short-term or long-term illness.
- An accident.
- A serious illness such as cancer, stroke or a heart attack.
- Any of the above things happening to a tenant of a buy-to-let property that you own and pay the mortgage for.
The majority of MPPI policies will pay out for up to a year and will start either 31 or 60 days from when you were unable to work due to sickness. Some policies are backdated to the date that you were first out of work.
MPPI monthly payments are capped at around £1,500 or £2,000 a month but this may not cover very large mortgages so you will need to think about how you could make up any difference there could be between your MPPI payments and your mortgage payments.
If you receive a pay-out for an MPPI policy, your entitlement to other income-related benefits may be affected.
In normal circumstances, consult your employer’s absence policy which will cover the amount of sick pay that they will pay you. You may not need a MPPI policy if your employer offers an adequate amount of sick pay for your outgoings and you also have savings to support yourself. If they are able to last a year then an MPPI policy won’t be of use to you.
Some employers will only offer Statutory Sick Pay. If your outgoings are more than this, MPPI could be beneficial to support yourself and your family if you were unable to work.
How to get a quote
To get a quote or to find out more about life insurance and income protection, visit your nearest building society branch to chat with a Mortgage Advice Bureau adviser.
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