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With many people looking at ways of cutting costs on regular outgoings, we have some practices that people should be aware of. Many have been looking at "cheaper" options for their mortgage protection life cover and personal life and specified illness cover. A few points to be aware of to make sure you are making the right decision:
Basic mortgage protection is effectively, reducing life cover. It reduces at an assumed interest rate (chosen when the policy is commenced) as it does not know exactly what your mortgage has reduced by over the course of it’s lifetime with various rate changes. This assumed rate needs to be AT LEAST the average rate over the term of your mortgage or else there could be a shortfall in clearing the mortgage. Make sure you clarify this with your advisor. Also on this point, many people will have availed of a moratorium (payment holiday) on their mortgage and/or and interest only period. This could also leave a shortfall unless your mortgage protection policy is a level or increasing term one.
With such a variety of "add-ons" and extra benefits available, it can be difficult to compare like with like. One of the other ways people have thought they were saving money, is where they checked the price of a level term policy (either for mortgage or family protection purposes) thinking it was cheaper and swiched, without realising that they had let go a valuable benefit called a "conversion option". This option allows someone to change or extend a plan before it ends, to a longer term plan, WITHOUT EVIDENCE OF MEDICAL HEALTH! It can be a difficult benefit to appreciate until something adverse has happened to your health and you would be either refused cover or heavily loaded on your premium.
Two other points worth being aware of, are firstly, the difference between "joint" and "dual". Joint cover only pays out on the first life assured, whereas dual means both are realistically covered. For example in the event of a double fatality, the plan would pay out double the sum assured. The second is the difference between "accelerated" and "stand alone" specified illness cover. Accelerated cover pays out a portion (or all) of the life cover on diagnosis of one of the illnesses covered, whereas stand alone pays out the sum assured for the illness but leaves the life cover amount untouched.
The best choices for people are really down to their own personal circumstances (the financial loss that would be suffered in certain events) and affordability at that time. As always, if anyone has questions about their own requirements or existing plans, please feel free to PM me for contact details. There is no charge or no obligation.
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