Payment Protection
It is most important for all of us to consider how we would manage, financially, if we cannot work, due to illness or injury (and, perhaps, redundancy) for any protracted period. Mortgages, loans and other comittments still have to be maintained, as well as other essential living expenses. A long period with little or no income can cause much hardship; at worst, you could lose your home!
This subject is the source of much confusion, as there are several different names given to products designed to serve a similar purpose. The most common names used are:-
Mortgage Payment Protection Insurance (MPPI)
Accident Sickness & Unemployment cover (ASU)
Income Protection Plans (IPP)
Permanent Health Insurance (PHI)
All the above are designed to replace lost income if you cannot work due to illness or injury. In the case of ASU, it also replaces income in the event of redundancy. Due to the various names plus a multitude of different terms and conditions, affecting what is paid, when and for how long, it is little wonder that this type of protection causes so much confusion. Sadly, it is also true that it is common for people to have wholly inappropriate cover for their needs.
As stated, each of the above named products share a basic principle in that, they will start to pay a tax-free income when the Insured Person has been unable to work for a certain period, due to illness or injury. This period is called the 'deferred period' or 'waiting period'. It is common for the benefit to start paying after just 30 days or 60 days. Some of the better plans pay with effect from 'day 1'.
Important notes :
It is vital to ensure the correct deferred/waiting period is selected, taking account of any continuing income support (sick pay) provided by your Employer. There are restrictions on how much Income Protection a person is entitled to have. We often find people are paying for cover that starts after (say) 30 days, when their Employer continues to provide their full pay for longer than this, (say) 3 months. In these circumstances, no claim can be made on the insurance cover until the Employers benefit ceases. In most instances of this nature a lower premium could have been paid for the correct cover.
Another important feature to note is that MPPI, ASU and IPP will usually only pay benefit for a maximum period of 12 months, although better products can pay for up to 24 months. PHI stands apart here as it continues to pay until you return to work.
Many institutions that arrange loans and mortgages (particularly Banks & Building Societies) tend to offer a very restricted range of Payment Protection products (usually MPPI or ASU). Once again, there is no substitute for Independent Advice, where you can select from the entire market and feel confident you have the protection best suited to your paricular requirements. Let us guide you, just complete our enquiry form to get a Professional Adviser to assess your needs and guide you to the right solution.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
Shire Financial Management (Independent Mortgage Advisers) LLP is authorised and regulated by the Financial Services Authority number 301835. You can check this on the FSA’s Register by clicking here and inserting our FSA number 301835. Buy to let mortgages and secured loans are not currently regulated by the FSA. For full details on any schemes or products shown or referred to, please call one of our advisors on 01905 330388. Actual rates available will depend upon your circumstances. Please ask for a personalised illustration
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