PHLS Mortgages : Mortgage Broker Advisor in Maidstone Kent

Decreasing or Level Term?
When it comes to life cover there are actually two main kinds of life cover, and they vary in the kind of cover and level of protection that they provide.

Decreasing Term Life Cover
Decreasing term life cover for a mortgage is a specific type of decreasing term life insurance policy designed to cover the outstanding balance of a mortgage in the event of the policyholder’s death.

Here’s how it works:

• Coverage Amount – When you purchase decreasing term life cover for a mortgage, you choose a coverage amount that matches the outstanding balance of your mortgage. The coverage amount decreases over time in line with the decreasing balance of your mortgage.
• Term Length – The term of the policy is typically aligned with the term of your mortgage. For example, if you have a 25-year mortgage, you should choose a 25-year term for your decreasing term life cover.
• Decreasing Coverage – Over the course of the policy term, the coverage amount gradually decreases. This ensures that the policy payout is sufficient to cover the outstanding balance of your mortgage at any point in time.
• Guaranteed Premiums – The premiums for decreasing term life cover for a mortgage are typically level throughout the term of the policy. This means you pay the same amount of premium each month or year, making it easier to budget for the insurance costs.
• Purpose – The purpose of decreasing term life cover for a mortgage is to ensure that your mortgage can be paid off in full if you were to pass away prematurely. By aligning the coverage amount with the decreasing balance of your mortgage, you can provide financial security for your loved ones and ensure they can remain in the family home without the burden of mortgage payments.

Level Term Life Cover.

Level term life cover is a type of life insurance policy where the coverage amount remains fixed, or “level,” throughout the term of the policy.

Here’s how it works:

• Fixed Coverage Amount – With level term life cover, you choose a specific coverage amount when you purchase the policy. This coverage amount remains the same for the entire duration of the policy term.
• Term Length – You also select the length of the policy term, which can range from 5 to 30 years or more, depending on the insurance provider. Common term lengths include 10, 15, 20, or 30 years.
• Premiums – The premiums for level term life cover are typically fixed throughout the term of the policy. This means you pay the same amount of premium each month or year, providing stability and predictability for budgeting purposes.
• Purpose – Level term life cover is often used to provide financial protection for your loved ones in the event of your death. The fixed coverage amount can help replace lost income, cover living expenses, pay off debts, or fund future financial goals, such as education expenses for your children.
• Flexibility – Level term life cover offers flexibility in how the death benefit is used by your beneficiaries. They can use the proceeds from the policy to meet immediate financial needs or to achieve longer-term financial security, depending on their circumstances.

Level term life cover is a popular choice for individuals who want straightforward, affordable life insurance protection with a fixed coverage amount and premiums. It provides peace of mind knowing that your loved ones will receive a specified amount of financial support in the event of your death, helping them maintain their standard of living and achieve their financial goals.

You may wish to review this from time to time to take inflation into account.

A popular option is to take out a Decreasing Term Life policy to cover any ongoing mortgage balance and then take out an additional Level Term Life policy to cover any ongoing living expenses over and above the mortgage balance which your family may face.

How Does Critical Illness Cover Work?
Like with life cover you can take out a Critical illness policy on either a Level Term or Decreasing Term basis. This means you can opt for a “lump sum” (Level Term) pay out amount of your choosing or set up the cover to decrease in line with your mortgage balance meaning that the cover will clear your outstanding mortgage balance at any time during the assured term.

Also, a “First Event” policy is also available meaning that the insurance company will pay out the policy in first event of either diagnosis of a Critical illness or in the event of death.

Here’s how it works:

• Policy Purchase – You purchase a critical illness insurance policy, either as a standalone policy or as an add-on to a life insurance policy.
• Premium Payments – You pay regular premiums (monthly or annually) to maintain the cover. The cost depends on various factors such as age, health, lifestyle, and the level of cover you choose.
• Illnesses Covered – The policy specifies which illnesses are covered. Common conditions include cancer, heart attack, stroke, and major organ transplants. Each policy will have a list of covered illnesses and the conditions under which a payout is made.
• Diagnosis – If you are diagnosed with a covered illness, you need to provide medical evidence to the insurer.
• Payout – Once the diagnosis is confirmed and meets the policy’s criteria, the insurer will payout against the policy for the amount assured. This payout can be used for any purpose, such as covering medical expenses, paying off debts, or compensating for lost income.
• Policy Ends – Depending on the policy terms, the coverage may end after the payout, or it may continue if it covers multiple illnesses.

Benefits Of Critical Illness Cover:

Critical illness cover offers several significant benefits, providing financial and emotional support during challenging times. Here are the key benefits:

• Financial Relief – Provides a substantial lump sum payout upon diagnosis of a covered critical illness, offering immediate financial relief.
• Income Replacement – Helps replace lost income if you are unable to work due to your illness, ensuring you can maintain your standard of living.
• Flexibility – The payout can be used for any purpose, such as medical expenses, mortgage payments, home modifications, or everyday living costs.
• Potential Access to Better Treatment – Enables access to better healthcare options, treatments, and medications that may not be covered by the NHS or your regular health insurance.
• Peace Of Mind – Reduces the financial burden on you and your family, allowing you to focus on recovery without worrying about money.
• Support For Loved Ones – Provides financial support to your family members, ensuring they can manage household expenses and maintain their lifestyle during your illness.
• Child Coverage – Some policies offer coverage for children’s critical illnesses, providing additional security for your family.

Conclusion:
Critical illness cover is a valuable addition to your financial planning, offering crucial support during some of the most difficult times in life. It ensures that you have the financial resources to focus on your health and recovery without the added burden of financial stress.

You can take out critical illness cover in addition to life cover, or as a standalone policy. This flexibility allows you to choose the level of protection that best suits your needs and budget.

Benefits of Income Protection:

• Regular Income Replacement – Provides a either a percentage of your pre-tax income or a monthly amount of your choosing, typically between 50% and 70%, ensuring you can cover your living expenses.
• Coverage For Long Term Illness – Continues to pay out until you can return to work, retire, or reach the end of the policy term, offering long-term financial security.
• Flexible Policy Options – Allows you to choose the deferred period (time before payments start) and the benefit period (how long payments last), tailoring the policy to your specific needs and budget.
• Peace of Mind – Reduces financial stress, allowing you to focus on recovery without worrying about lost income.
• Broad Coverage – Covers a wide range of illnesses and injuries, not just critical conditions, making it a comprehensive form of income protection.
• Tax Free Benefit – In the UK, the benefits received from an income protection policy are typically tax-free.
• Support For Self Employed – Provides essential coverage for self-employed individuals who may not have access to sick pay or other benefits.

Key Features to Consider

• Deferred Period – The length of time you must be off work before the policy starts to pay out. Common waiting periods range from 4 weeks to 52 weeks. This will depend on how long you calculate you can survive without your full income whilst being signed off work.
• Benefit Period – The duration for which the policy will pay out, which can be for a few years or until retirement age. The longer the benefit period the higher the cost.
• Level of Cover – The percentage or level of your income that will need to be replaced. Ensure this amount is sufficient to cover your essential expenses such as mortgage repayments and other household bills.
• Guaranteed or Reviewable Premiums – Choose between premiums that stay the same throughout the policy term or those that can change based on periodic reviews.

Conclusion:
Income protection insurance is a valuable addition to your financial safety net, offering continuous income support during periods when you cannot work due to illness or injury. This ensures that you can maintain your lifestyle and cover essential expenses while you focus on recovery.

As with other insurance needs we can discuss your Income Protection needs either during the mortgage consultation process or outside of this process on a one-off basis. We will talk through your needs and tailor an Income Protection policy that covers your needs and your budget.

Here are some key points to understand about this requirement:

Why Buildings Insurance Is Mandatory for a Mortgage:

• Lender Protection – The primary reason lenders require buildings insurance is to protect their investment. If the property is damaged or destroyed, the insurance ensures there are funds to repair or rebuild, maintaining the value of the collateral for the loan.
• Mortgage Conditions – Most mortgage agreements include a clause that mandates buildings insurance as a condition of the loan. Failure to maintain adequate insurance can lead to a breach of the mortgage terms.

What Buildings Insurance Should Cover:

• Rebuild Cost – The insurance should cover the full cost of rebuilding the property from scratch, including demolition, site clearance, and professional fees (e.g., architects, surveyors).
• Standard Perils – The policy should cover standard risks such as fire, storms, floods, vandalism, and other common hazards.

Choosing Building Insurance:

• Policy Flexibility – You are usually free to choose your insurance provider. However, the policy must meet the lender’s requirements.
• Start Date – Ensure the buildings insurance policy starts on the date you exchange contracts and you legally own the property.
• Coverage Confirmation – Provide your lender with evidence of the insurance policy, such as a certificate of insurance or policy schedule.

Combined Building & Contents Insurance:

Unlike Buildings Insurance, Contents cover isn’t mandatory, but we strongly recommend that you combine this cover with your Buildings Insurance as either a flood, fire or other event could destroy thousand of pounds worth of possessions when you least expect it.

• Optional Contents Insurance – While buildings insurance is mandatory, contents insurance is optional but recommended to protect personal belongings inside the home.
• Combined Policies – Many insurers offer combined buildings and contents insurance policies, which can be convenient and potentially more cost-effective.

Important Considerations:

• Flood Risk – If the property is in a flood-prone area, ensure the policy includes adequate flood coverage.
• Subsidence & Heave – Check for coverage of ground movement issues, especially if the property is in an area prone to such problems.
• Additional Cover – Consider optional extras like accidental damage cover or home emergency cover, depending on your needs.