mortgage associated products WEEK 9 Flashcards
what does Payment protection insurance (PPI) / Mortgage payment protection insurance (mppi) cover?
Usually provided annually on a renewable basis
Covers 100%, or 125% of the loan cost (mortgage in our case) when the insured person cannot work due to either:
Sickness
Accident or Disability
Involuntary redundancy
Usually covers up to a maximum periodd of two years
It is available at ‘half-strength’ or at ‘full strength’
Typical conditions for PPI are
- The insured person has to be between 18 and 64 years of age
- Pre-existing medical conditions are excluded
- The insured person works at least 16 hours a week and has done so in the last six months
- If the insured person is aware of being at risk of redundancy, they will not be insured
- It is available for self-employed people too, but limitations apply
Accident, sickness and unemployment (ASU)
- Very similar to PPI, but it does not exist for the purpose of protecting credit repayment
- Benefits might also include a lump-sum payment
Term insurance (life)
Covers the insured persons for a specific term, usually the mortgage term.
- It is the least expensive form of life insurance
It exists in three forms
- Decreasing term insurance
- Level term insurance
- Increasing term insurance
what do advisors recommend in regards to Term insurance (life)
Although this is not usually a condition for obtaining a mortgage, financial advisors will strongly recommend this type of cover is taken out, particularly for products like:
- Capital repayment mortgages
- Pension mortgages or ISA mortgages (interest only with a repayment plan)
Life assurance
Also known as ‘whole life insurance’, provides a lump-sum to specified beneficiaries (usually the insured person’s dependants) in the event of the insured person’s death. The policyholder will be covered for their entire life.
Critical illness (ci) cover
- These policies pay a lump-sum on the diagnosis of any of the conditions or diseases specified in the policy
- The trigger is diagnosis, not prolonged illness, but the claimant usually has to survive 28 days before the policy is paid out
- They are often packaged with a life insurance cover
- The policy can only be claimed against once
The illnesses typically covered by a CI policy are:
Heart attack
Stroke
Cancer
Surgery for coronary artery disease
Major organ transplant
Alzheimer’s disease
Some insurers also include:
Paraplegia or paralysis
Loss of limbs
Multiple sclerosis (MS)
Income protection insurance (IPI)
Provides a level of income from when the policy is taken out, until an age chosen by the insured person when the person is unable to work due to disability.
- The benefits are taken out until the insured person returns to work, retires or passes away.
- Generally, 50-60% of a person’s income (tax free)
Generally, 55, 60 or 65 which is normally when the client hopes to retire
- There is usually a deferred period between loss of income and receipt of benefits (4, 8, 13, 26, 52 or 104 weeks)
What is IPI and how do premiums / cancelation work?
What is classified as a disability within the scope of the policy. This generally requires that the insured person is totally unable to work in the occupation stated in the policy.
- IPIs premiums cannot be increased by the insurance company, nor can they cancel a policy no matter how many claims are made
home insurance
building and contents
building insurance
insures the building against danger of damage. It often a requirement imposed by the lender as a condition of the mortgage
contents insurance
it covers the contents of the property against loss, damage and theft. For especially valuable items there might be an extra premium to be paid. Some contents insurance will provide options to cover selected items outside of the home also.
is it cheaper to buy both with the same provider?
yes
Building insurance – sum insured
When selecting building insurance, careful consideration should be given to the sum insured. This should be enough to reinstate the building to the exact conditions they were before damage occurred. This includes the cost of clearing debris, and the cost of all the professionals involved in the process of re-building. If property is underinsured, the insurer might only pay claims on pro-rata basis. This is known as the average clause. Finally, some lenders will insist that building insurance is bought through them to ensure reputability of the insurance company – often this is done when there’s an initial deal in place (fixed rate or discount).
