Importance of Income Protection Insurance

25th June 2017

If you couldn’t work for several months due to illness or injury, could you manage financially? Whilst you might have savings to tide you over for a short period off work, if it went on for longer, you might find it a struggle to meet mortgage costs and household bills. That’s where income protection insurance comes in.

How income protection policies work

These policies are designed to pay out if you’re not able to work and earn money due to illness or injury, and, in some cases, forced unemployment. They provide valuable protection for breadwinners, the self-employed, and employees who receive limited or no sick pay from their employers.

There are various types of policy available, such as guaranteed policies premiums which remain constant throughout the policy term, reviewable policies where premiums are periodically in-line with your age and state of health, and age-related policies where premiums increase in-line with your age.

The maximum claimable amount is usually net monthly earnings after tax, minus any state benefits. This could be around 65% of your gross earnings and it’s usually tax-free.

Policies pay out following your chosen deferred period, typically between four and 52 weeks, and can continue until you return to work or the policy expires at the end of a fixed period.

There’s a wide range of policies and benefits available; talking to your adviser will help you make the right choice.

As with all insurance policies, conditions and exclusions will apply.

Life Insurance – New Readers Start Here

25th May 2017

Life insurance is arguably one of the most important financial products anyone can take out, and one of the best ways of protecting your loved ones financially.

How much cover do I need? The amount will vary according to your lifestyle and your circumstances. You may want to protect your mortgage, cover household bills or provide a lump sum so that your children get a good education. Life insurance can be tailored to your needs, and we can help you assess how much is right for you and your circumstances.

What is term insurance? Term life insurance policies run for a fixed period of time such as 10 or 25 years and pay out if you die during the term of the policy. There are various forms of cover to choose from, including level term insurance, where the cover remains at a constant level throughout the policy, or decreasing term insurance where the level of cover gradually reduces over the term of the policy, with the sum assured reducing in-line with the outstanding amount of your mortgage.

What is a whole-of-life policy? Whole-of-life policies, as their name suggests, provide cover that lasts a lifetime. This type of policy doesn’t normally have an end date, so premiums are paid until you die, at which point the policy pays out (sometimes premiums end at a certain age, say 80, but cover continues until your death). This type of cover is generally more expensive than term insurance as the policy can be in force for many years.

As with all insurance policies, conditions and exclusions will apply.

Six Reasons Not to Panic Post Brexit

25th April 2017

Although many predicted a ‘DIY recession’ would follow a vote to leave the EU, and although it’s earlydays, the UK has so far fared better than expected. Once the initial shock to leave had subsided, and the new Prime Minister, Theresa May, had stated clearly that ‘Brexit means Brexit, and we will make a success of it’, markets and economic confidence began gradually to return, bringing more stability.

The stock market hasn’t fallen sharply. The FTSE 100, made up of many international blue-chip companies rose by over 700 points in the three months following the declaration of the vote on June 24. The FTSE 250, with a greater representation of UK companies, had risen to around 17,900 three months after the vote from 16,088 points on June 24.

The lower pound is helping exports and foreign tourists. The pound fell to its lowest level against the dollar for over 30 years after the vote. A lower pound has meant that our exports are cheaper and more attractive abroad, and more tourists are finding the UK cheaper to visit.

Interest rates are low. Rates have already been cut to 0.25% and may be cut again, meaning loans and mortgages remain affordable and available. The Bank of England has signalled on several occasions that it will consider introducing further cuts and a programme of quantitative easing if market conditions make this necessary. Many experts are now predicting that the UK will narrowly avoid going into recession.

House prices have held up so far. According to data from the Nationwide Building Society*, the average price of a home in the UK rose 0.6% between July and August. The average house price rose to £206,145. Although there is some evidence that demand is cooling, if this leads to a lowering of prices, first-time buyers are likely to breathe a collective sigh of relief as it will make it easier for them to get into the market. Since the fall in the value of the pound, estate agents report that foreign buyers have been showing renewed interest in the residential housing market in London and the south east.

Inflation is holding steady. Inflation rose by 0.6% in August, unchanged on the previous month. Analysts had predicted it would be higher following the vote. Inflation is still below the Bank of England’s own per cent target level, and at present no one is predicting runaway inflation becoming a serious concern in the foreseeable future.

Employment is holding up. More people are in work than ever before according to figures from the Office for National Statistics**. Nearly three quarters of people who can work have jobs. Employment rose by 174,000 in the three months to July, the highest level since records began 40 years ago, and showing market resilience at a time when many had expected unemployment to rise.

*Nationwide Building Society, House Price Index, August 2016
**Office for National Statistics, UK Labour Market, September 2016

Bank of England vs Buy To Lets

25th March 2017

The Bank of England’s Financial Policy Committee will be granted new powers by the government to control buy-to-let LTV and interest coverage ratios.

From early 2017, the FPC will be able to direct the PRA and FCA to require regulated lenders to place limits on buy-to-let mortgage lending in relation to LTV ratios and interest coverage ratios. The government says this will help the Committee “protect the financial system from future risks in the buy-to-let mortgage market”.

It follows the FPC recommending that it be given additional powers of direction over both the residential mortgage lending market and the buy-to-let mortgage market in September 2014. The government granted the FPC powers over the residential mortgage lending market in April 2015.

The Chancellor of the Exchequer, Philip Hammond, said: “It is crucial that Britain’s independent regulators have the tools they need to keep our financial system as safe as possible. “Expanding the number of tools at the Financial Policy Committee’s disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability.”

In practice this means that lenders will be changing their rental stress testing to ensure compliance with this new approach. This will restrict lending by requiring a higher rental cover of the mortgage. Rental yields may be attractive to Landlords but ultimately will need to be unprecedently high to appease the new lending criteria.

With every lender adopting a different approach to buy to let properties and a distinct set of criteria, there has never been a more pertinent time to seek independent financial advice to navigate the changes afoot.

Putting Your Policy in Trust

25th February 2017

After taking out Life insurance you can place it in Trust. The Trust is a document provided by your advisor or insurer at no additional cost and its purpose is to ensure that the proceeds of your policy are used as you intended.

Few people write their policies in Trust, but most should! The main benefits are significant:- 

  • Control: You can specify exactly who should benefit from the life insurance money and how it should be paid.
  • Minors: The proceeds of any claim can typically be held in trust until the chosen beneficiary is eligible to receive them, for example when they reach a certain nominated age. 
  • Faster payment of the money: Using a trust should help to ensure that the money paid out from your life insurance can be paid out to the people of your choice quicker. This is because there is no need to wait for probate to be granted. 
  • Avoiding Inheritance Tax: When a life policy is not held in trust, it will normally be considered part of the estate meaning it can be subject to Inheritance Tax. Using a trust should mean that the policy is not part of the estate and should therefore not be subject to Inheritance tax.

Beware, most Trusts are linked to a specific policy number, and where there are no other assets to distribute, any changes or cancellations to the policy will automatically dissolve the Trust and mostly without notification. This means that whenever changes are recommended, the linked Trust will also be reviewed.