Monthly Archives February 2013

Over 50’s Plans vs Whole of Life Cover

So you’ve hit the Big 50 which immediately makes you eligible to consider an over 50’s plan. Great! Insurance without the hassle of lengthy forms and no prying medical questions!

Nice and simple.

But possibly expensive and with less cover available than other options.

The two options being looked at here are:

Over 50 plans

The idea of an over 50 plan is to provide life cover until you die, whenever that may be.

It is not medically underwritten so acceptance is usually guaranteed.

Key points to be aware of:

  • Cover is usually restricted to a pre-set maximum amount (usually 10’s of thousands).
  • The ‘sum assured’ (amount of cover) is often fixed
  • There is often an ‘exclusion’ period during which the policy will pay less than the cover is actually for.

Whole of Life Cover

The idea of a Whole of Life policy is to provide life cover until you die, whenever that may be.

It is medically underwritten so acceptance is not guaranteed. In the event of serious medical conditions cover could be refused or the price could go up.

Key points to be aware of:

  • Cover may be restricted but the maximum may be in the 100’s of thousands.
  • The ‘sum assured’ can be fixed or can increase with inflation
  • There are no ‘exclusion’ periods (except possibly suicide in the early years).
  • Any medical conditions not disclosed at time of applying could void the policy.

There are similarities and also fundamental differences.

And then there’s the cost.

The main appeal of an over 50’s plan is that they are not medically underwritten and acceptance is usually guaranteed.

If there are medical conditions this can be the deciding factor but ‘Whole of Life’ cover can be MUCH CHEAPER so if you don’t know for certain if a medical condition will cause a problem, speak to an adviser about it before going down the Over 50’s route.

A lot of people over 50 take medication for minor conditions and sometimes the medication is preventative only.

If a condition is minor or is very well controlled (i.e. cholesterol or blood pressure) it might not have any effect on the cost or the availability of a Whole of Life policy.

An example of cost:

Eg. Female (let’s call her Mildred), aged 54, non-smoker, no medical conditions to speak of wants £10,000 of cover.

Whole of life policy = £12.83 (Pruprotect)

Over 50’s plans usually ask how much you want to spend so I got a quote from Sainsbury’s (which is actually Legal & General) and used a monthly premium of £15.

Over 50 plan = £15 per month will buy Mildred £4,515 of cover.

So it costs more for less than half the cover you’d get from a Whole of Life policy.

By tweaking the monthly payment it would actually cost £31/month for £9,993 of cover from the Over 50 plan.

More than double the price.

So if Mildred lives to the ripe old age of 84 she will pay £6,541.20 MORE for the over 50 plan.

She would have paid a total of £11,160 for £9,993 of cover.

With the Whole of Life cover she would have paid £4,618.80 for £10,000 of cover.

Even if Mildred is taking cholesterol medication and blood pressure tablets to keep everything nicely controlled she’ll probably pay exactly the same price as someone who isn’t.

To reiterate, if there are no medical conditions or if they are minor or well controlled, a Whole of Life policy could save someone thousands!

What if Mildred needs £50,000 of cover?

  • Sun Life has a maximum of £25,000
  • Sainsbury’s (L & G) maximum premium of £50 would buy Mildred £16,597 of cover
  • Asda (LV) has a maximum of £25,000
  • Aviva with maximum premium of £50 would buy Mildred £17,023 of cover

Just not enough….

An over 50 plan could cost more and be restricted by the amount of cover available.

If someone does have a serious medical condition then it could be the only option but beware the exclusion period!

Sun Life & L&G have a 2 year exclusion period whereby if a policy holder dies within the first 2 years due to natural causes the total amount paid in the event of a claim will be 1.5x the total of the monthly premiums paid to date.

LV has a 1 year exclusion period.

If Mildred, aged 54 dies from natural causes after 10 months the payout could be 1.5x the total of the premiums paid = £31 x 10 = £310 x 1.5 = £465

If she has an equivalent Whole of Life policy the payout would be £10,000.

Huge difference.

Don’t rush into an over 50 plan.

Speaking to an adviser about the options could save £1,000’s

Guest Post: Why Cost Shouldn’t be the Only Factor When Choosing Your Life Insurance

When it comes to choosing a life insurance plan to protect your family it’s tempting to primarily look for a low-cost option. After all, this is a premium that you’re likely to be paying for many years and possibly the rest of your life so you don’t want to tie yourself in to something overpriced. However, sometimes low-cost premiums can be misleading, and if you’re not confident in what you’re looking for, you could end up out of pocket. Here are a few of the other factors you should consider before you take out a policy.

Inflation

Inflation is a fact of life that all too many people overlook when they’re making long-term investments. What seems like good value today could be worth considerably less in an altered financial climate. Keep an eye out for insurance companies that offer a voluntary increase in your premiums to keep your lump sum in-line with the market value.

Health

Some insurance companies will charge a much higher premium, or even refuse to cover you outright, if you’ve experienced health problems in the past. However, other insurers have a policy of not asking questions about your medical history, which can help you to get a fair deal. The attitudes towards health concerns in life insurance vary wildly, so if you have had any issues take the time to shop around before you commit.

Age

There’s a common contradiction in life insurance wherein young people tend to think they don’t need it, and older people can fall into the trap of assuming they’ve left it too late for it to be of value. Neither of these assumptions is true. Some brokers cater specifically to older consumers, which allows them to negotiate better value from the insurers.  If you’re younger you can often get a larger lump sum for a much lower monthly premium, as you’re likely to be paying it over a longer period of time. But again, this varies from broker to broker.

Value for money

Finally, before you settle on one life insurance provider, you should look at the additional benefits on offer. A slightly higher premium might be worth more if it’s more secure or flexible. Some brokers offer tailored partner insurance, while others have benefits such as a freeze on payments when you reach a certain age or have been paying for a certain amount of time. You should also read the small print carefully and balance out the exclusions. The last thing you want is for your loved ones to lose out due to a gap in your eligibility. Stick to trustworthy and fully accredited brand names to avoid disappointment, and take the time to explore your options. The peace of mind that comes from knowing your family is protected is well worth the effort.

Credits:

RIAS take great care to meet the needs of over 50s, offering insurance cover that is relevant and flexible. To learn more about the life plan, download their > 10-step life insurance guide.

How to Use a Mortgage Calculator

I’m not just talking about using a mortgage calculator to work out what the monthly payments will be but how to make use of a calculator that shows the ‘amortization’ or monthly & yearly breakdown of payments and balance as well as the difference an overpayment could make.

Anybody who has any exposure to mortgages will know there are several options available which include fixed rate deals, trackers or lender’s ‘standard variable rates’.

Fixed deals last for a set number of years and for those set years the interest rate stays the same.

Tracker deals may offer an interest rate that ‘tracks’ another rate such as the Bank of England base rate with a set percentage difference. e.g. BBR (Bank Base Rate) +2%. (The base rate is 0.5% so the tracker rate would be 0.5% + 2% = 2.5%).

Variable rate or lender’s Standard Variable Rates simply start at a certain rate and can fluctuate up or down from that point. These rates are usually higher than fixed or tracker deals to encourage people to tie themselves into a lower rate deal with a particular lender (or to make a tidy profit from people unable to switch lender due to credit problems or reduced income).

A fixed rate deal offers security because monthly payments will not change for the term of the deal but what if the safety of fixed payments is not your main agenda?

What if the thing that really motivates you is getting clear of your mortgage as quickly as possible?

In order to clear your mortgage more effectively and pay less interest in the process it will be important to know if a fixed deal or a tracker will leave you better off.

Will the outstanding balance be lower after a 2 year deal at 3% compared to a 5 year deal at 5%…?

For the purpose of this exercise I will be using the mortgage calculator I put here:

http://www.creditmarket.co.uk/mortgage-calculator/

I hunted high and low for a good calculator to place on that site and I think I found a good one!

It produces amortization tables with a month-by-month breakdown.

Let’s look first at an example of a £150,000 mortgage over 25 years.

Assuming an initial fixed rate deal of 3% the calculator shows this:

If you then click on the ‘Amortization Schedule’ tab it shows this:

As you can see it shows a monthly breakdown for the first 12 months and you can scroll this amortization schedule to look at every month for the full 25 years.

In the graph the black line represents the timespan which is 25 years. The red sections are the interest (which goes down over time as the debt reduces) and the green sections are the ‘capital’ (how much you are actually paying off the debt).

The big thing wrong with this is that fixed deals only last for a set number of years, typically 2, 3 or 5.

Going for the middle, if the mortgage is on a 3 year fixed rate then we need to scroll down to month 36 and look at the numbers.

This shows the outstanding balance after 3 years.

Now that we know where to look, let’s see the difference between taking a 2 year fixed at 2.49% with a £995 fee compared to a 2 year mortgage at 3.45% with no fee.

2.49% with £995 fee:

Note the ‘total’ shows £150,995 to include the fee – this assumes the fee is added to the loan.

3.45% with no fee:

As you can see, even by adding an extra £995 to the mortgage, a rate of 2.49% will see you about £104 better off.

But wait! The mortgage at 2.49% works out at about £676/month so in 24 months costs £16,224. The mortgage at 3.45% is about £746/month or £17,904.

The 2.49% mortgage saves £17,904 – £16,224 = £1680 over 2 years and still reduces the mortgage by over £100 more!

Worth finding out in advance? I think so.

Now how about this option. Take the £1680 saved and divide by 24 = £70.

Instead of saving this, how about using it to overpay the mortgage each month? Put £70 in the ‘overpayment’ box and:

The mortgage could be paid off in 21.9 years and after 2 years the debt is £1721 lower even though you only paid an extra £1680.

Try more overpayment figures and see how drastically you can reduce a mortgage by overpaying.

If making overpayments it’s important to know there could be penalties if you’re tied into a fixed or tracker deal but probably not if you’re on the lender’s SVR (standard variable rate).

When comparing tracker rates it’s also important to know the rate could change so any calculations can only be estimates.