Redundancy Cover and Income Protection Advice

 

 

Independent Advice on Income Protection and Unemployment Insurance

 

 

ASU/MPPI

 

Accident, Sickness and/or Unemployment (ASU) or Mortgage Payment Protection Insurance (MPPI) policies are used to cover mortgage costs if the insured is unable to work because of:

 

•  Sickness

 

•  Accident or Disability

 

•  Unemployment

 

Cover is designed to provide a replacement income for 1-2 years. This is therefore limited cover as a protection plan, but is cheaper than the income protection cover described below. MPPI is available as a half strength policy providing either unemployment or sickness and accident cover or as a full strength policy providing both elements at a highercost.

 

 

 

ASU Cover is virtually identical to MPPI, except that it is not designed exclusively to cover mortgage costs and is used for the more general purpose of replacing lost income as a result of any of these three events.

 

Only 30% of claimants are eligible for Income Support when they are unable to keep up their mortgage repayments due to disability or unemployment.

 

•  No Income Support payments are made if your partner works more than 16 hours a week

 

•  DSS will not cover mortgage capital repayments or insurance costs

 

•  No help is given for mortgage interest on the portion of a loan above £100,000

 

•  No payment is made if the mortgage is for let property

 

•  For mortgages taken out before 2 October 1995, you may be entitled to 50% of interest paid after 8 weeks, rising to 100% of interest after 26 weeks

 

•  For mortgages taken after 2 October 1995, you may be entitled to 100% of interest paid only after 40 weeks up to a maximum of £100,000.

 

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Income Protection Insurance

 

Income Protection policies cover up to an age chosen by the client, usually 55, 60 or 65 in order to coincide with their anticipated retirement date. To provide an incentive to return to work, cover is limited to, say, 50%-60% of the current level of income, payable on a tax free basis. The claimant has to be absent from work for a certain period before benefits are payable. This is called deferred period and can be 4 to 104 weeks (options vary among different insurers).

 

You can discuss the different options with our Advisers who can recommend the best product that meet your requirements and are suitable to your needs taking into account your affordability. Obviously the shorter the deferred period and the longer the term, the more expensive the premiums.

 

In the event of a claim, the benefit is payable until the claimant returns to work, retires or dies. As long as you continue to maintain monthly payments and comply with any relevant policy terms and conditions, the insurer cannot cancel the plan, no matter how many claims are made.

 

Critical Illness Cover and Income Protection are occasionally seen as alternatives to one another. However, they should be seen as complementary and together represent a comprehensive solution to a clients financial needs in the event of a serious and lingering illness. If the client contracts one of the specified illnesses in the CIC policy, a lump sum is paid off; if the client is unable to work through sickness or disability, enough income is provided to meet their expenditure, including mortgage payments.

 

An example quotation is detailed below:

 

A male aged 31 has an aniticipated retirement age of 65. He has a desk based job and is earning £35,000 gross per annum. He wants to arrange income protection to retirement. For a level monthly benefit of £1,458 per month guaranteed to age 65 with a 26 week deferred period, the monthly premium would cost £28.83. This also includes Waiver of Premium which would pay for the plan premiums in the event of accident or sickness. The benefit for this plan would be index linked to RPI.*

 

*Research was done on 13/08/2007.