Archives for Insurance

Something Really Good About Income Protection for Company Directors

Own a business? Pay your spouse?

Good idea for tax purposes (and ideally they should actually be doing something for the income too!).

But, does it cause problems and disadvantage you in other areas?

Take getting a mortgage as an example.

If you pay your spouse £11,500 (tax allowance) and for some funny reason you don’t want them on your mortgage (maybe they have other credit commitments or some other valid reason why you wouldn’t want them to part own the property) then you could be reducing your borrowing potential by as much as £11,500 x 5 = £57,500.

Quite substantial.

That’s just one possible example of being potentially disadvantaged for paying your spouse a salary from your business.

breakfall

So what is so good about income protection for company directors?

Well, I’ve just had a conversation with a well known UK insurer with a rich pedigree of providing Income Protection insurance and I’ve learned the following.

If you are responsible for bringing home the bacon and your spouse could not generate the business income if you were off sick then, with this particular insurer, you can add back their income & dividends to the total income figure used to calculate your cover.

Example:

Let’s use a low figure of £30,000 profit for simplicity.

You both get £10,000 salary + £5000 dividends. (£15k each).

With some insurers you may only be able to use your £15k to work out how much cover you can get.

The maximum income protection possible is 50% – 60% of ‘gross annual income’.

Using the lower figure; 50% of £15k = a measly £7500 of possible income protection.

But, if you can add back and use the total business profit you can cover 50% of £30k = £15k per annum.

And this is paid TAX FREE.

So imagine 2 scenarios:

1/ You’re sick, at home and you have no money and the stress is piling up. You don’t know how the hell you’re going to pay the mortgage – you might lose your house.

2/ You’re sick at home, the bills are getting paid by an insurance company and you can slowly recuperate and get back into work in your own time.

Which would you prefer?

So if you are a company director / business owner and think scenario 2 is preferable then get in touch with an adviser, get a quote and get yourself covered!

But make sure you speak to someone who knows what they’re doing and which insurance companies to turn to for the best deal.

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.

TV Life Insurance Ads

A little while ago Aviva launched a series of life insurance ads on TV to try and raise awareness and so they should because apparently the UK population is grossly under-insured.

Having been in the industry for but a few short years these were the first TV ads I’d seen for life insurance.

It turns out (and it’s not a major revelation if you think about it) TV ads for life insurance have been around in other parts of the world for quite some time and while searching the interweb for ideas and information I came across one from late 2010.

The Aviva ads tried to address the issue with a direct but emotive message.

This one however, used humour! Enjoy…!

Thinking Differently about Insurance

Many people don’t enjoy spending money on insurance. Car insurance is a legal requirement and can sometimes feel like a financial burden which is one reason people like to shop around for the best deal.

Anyone who has had to make a claim on their car insurance is more likely to appreciate the benefit and may subsequently start to look more closely at what they are buying to make sure they receive the best care when they need it most.

Car insurance comparison sites know this which is why a few years ago they started to display some of the key features like courtesy cars, protected No Claims Discount and add-ons like breakdown and legal cover.

Instead of thinking, ‘I’ve got to spend £300 on my car insurance this year’, consider this line of thought:

‘If someone claims against me after a car accident I’m going to have access to up to £500,000 of legal protection to cover compensation and it’s only going to cost me £300!’

It’s a bit more positive and makes you feel good about what you buy.

I’ve been reviewing other types of insurance and started to see them in a different light.

Take life insurance for example.

I recently helped someone with medical problems get cover of £500,000 for 20 years and it’s going to cost £55 per month.

That person could be thinking, ‘I now have to pay £55 a month for the next 20 years!’

Or, look at it this way.

£55 per month for 20 years will cost in total £13,200.

Seems like a big number but depending on how it’s put it can make the cover sound very positive.

E.g.: ‘If I give you £13,200, my family will get £500,000 (half a million pounds) if I die at some point in the next 20 years?’

‘Yes, and you can pay that monthly with no interest on the payments!’

This is why life insurance quotes now display the total amount you’d pay over the term.

It helps people put it into perspective.

When it comes to Buildings & Contents insurance it’s a little difficult to for most of us to appreciate having cover that will give us enough money to rebuild our house if it falls down. I mean, how many people do you know who’s house has fallen down?

Things that can be more important are cover for things like  flood damage or subsidence but for the majority of people the real seller should be the contents cover!

Aside from a house falling down you are more likely to hear friends and family say things like: ‘I spilt coffee on my laptop and got a brand new on on the insurance!’ or ‘One of the toddlers put jam in the DVD player and we got a new on our insurance!’

This is ‘Accidental Damage’ in action and if you said to someone you could get them a new computer, a new stereo or TV, sofa etc. if they are accidentally damaged and it’s only going to cost £100 per year then all of a sudden it seems like a good idea.

It is the benefits that make the difference with insurance and you sometimes really have to read all of the documentation or talk to an adviser to understand what you are going to get for your money.

What’s this? My Overdraft Protection isn’t Compulsory?

For as long as I can remember I’ve had a monthly entry on my bank statement that was called ‘O/D Protection’.

I thought this was a compulsory part of having an overdraft and for a time I was occasionally dipping into the overdraft so protection seemed like a good idea.

It wasn’t until my bank changed the title of this to ‘Payment Protection’ that it caught my attention.

What with all the automated sales call about PPI I keep receiving I thought my bank had taken it upon themselves to mis-sell me some without me even knowing about it.

I spoke to my bank and they explained that, (a) The ‘Payment Protection’ is what used to be referred to as ‘O/D Protection (b) It wasn’t compulsory and (c) It was effectively a PPI policy.

It was at this point that I remembered my recent credit card PPI claim that the Ombudsman has upheld.

If my credit card PPI claim had been upheld on the grounds that it was mis-sold then quite clearly I have a case against my bank for a PPI policy I didn’t realise was optional AND I wouldn’t have been able to claim on due to my self employment status.

The original O/D Protection was applied to my account in 1998 and has cost me approximately £4 per month and is still running (they’ve said they can’t cancel it until a dispute is settled… which seems odd if they’re probably going to have to give me all my money back anyway – with interest).

So that’s 13 years at £4 per month = £624

I think I have a pretty strong case but I now have to go through the standard procedure for making a PPI claim which means form filling and joining the back of the queue of the thousands of other people currently claiming!

I doubt I’ll see a refund this side of Christmas but it just goes to show that mis-selling has indeed been a scandal and it wasn’t always called PPI (Payment Protection Insurance).

Check your bank statements, check your other financial commitments such as credit cards and loans and then visit the very helpful Financial Ombudsman Service  website to find out if you’d qualify for a refund and a simple DIY guide to making a claim.

If you have the time, it’s not too difficult to do yourself.

An ‘Online Only’ Car Insurance Experience

The theory goes that if a business doesn’t need to pay as many salaries, it can offer its products at more competitive prices.

The internet is therefore an ideal medium for transacting low cost automated business.

If a company can use its website to take a customer from enquiry through to sale without the need for human intervention it should be able to save money and either increase profit margin or pass the savings on to customers.

Having tried a selection of car insurance comparison sites I recently settled for an ‘online only’ car insurance policy.

It was the cheapest policy I could find that also included things like protected NCD (No Claims Discount) and legal cover.

The welcome pack and certificate arrived and all was well.

But then 1 month later I moved house and I had to make some changes…

It soon became apparent there was no customer services phone number at all and all enquiries (apart from claims) had to be sent by email.

This wasn’t an immediate problem as my enquiry wasn’t urgent and all I needed to do was ‘login’ to my ‘customer area’ and make the changes to get a new quote.

I’ve been using the internet for a few years now so I can’t say how a ‘newbie’ would find things but I found changing my details and getting a fresh quote to be quite straightforward albeit a bit ‘clunky’.

Having changed the addresses and obtained a new quote I fell off my chair.

The insurer wanted an additional 75% of the original premium for the remaining 11 months of the policy.

It was at this point my need to contact customer services became a bit more important and so duly I compiled an email to to find out if I had correctly altered the policy information.

48hrs later and no reply…

So I sent the same email again.

Another 48hrs later and still no reply…

I then forwarded the email to the ‘compalints@’ email address and lo, a reply!

The alterations and new premium were confirmed as correct.

Yes, it would mean my premium would nearly double just for moving house.

Strangely though, when I went back to the comparison sites I was able to find a different insurer who could offer me a policy at the new address for less than the original premium at the old address!

If only I’d checked the cost of cover at the new address before I bought the policy!

Now there’s usually an ‘admin fee’ to pay when you cancel a car insurance policy (even if you cancel within the ‘cooling off period’) so before I rushed into cancelling I did some digging and found out I would be charged the princely sum of £75.

The only comparison I can offer is Swiftcover who transact most of their business online but would have only charged me £50 and who also have a call centre with customer service operatives and Iggy Pop.

An admin fee of £75 is therefore, in my opinion, a bit steep for an ‘online only’ insurer but it was still more cost effective to suck it up, pay the fee and go elsewhere than it would have been to pay the additional premium.

Having cancelled, I was notified that any refund of premium would be processed within 30 days and not one day sooner than that, I received my refund.

Oddly, it took only minutes for them to take my money in the first place and just a few days to receive the policy documents so why it took them 30 days to give me my money back can only be their way of squeezing every last drop of interest out of the funds in their account before releasing them back to me. Or am I being cynical?

Anyway, it turns out that a customer services phone number is quite improtant to me afterall and I doubt I’ll compromise again in the future.

So all in all, not the best car insurance experience I’ve had but I suppose that’s what you get for buying car insurance from a supermarket!

The only clues I’m giving to who the insurer was are:

Their name has 4 letters and starts and ends with A.

Their slogan is ‘that’s A _ _  A price’.

Why it’s Important to Get Life Insurance Advice

I am personally involved in helping people find life insurance. Mostly for people with a medical condition or high risk occupation.

Regardless of the different circumstances of the individual, the things that people protect are always the same and the top two priorities are family & mortgage.

Mortgages are quite simple to protect. If the mortgage is ‘Interest Only’ (the debt stays the same) then the most suitable cover is likely to be ‘level’ term insurance which also stays the same.

If a mortgage is ‘repayment’ which means it goes down over time then the FSA favours ‘decreasing’ cover which also goes down. It is cheaper than ‘level’ cover and serves the purpose, although quite a few people tend to favour ‘level’ cover even though the mortgage is going down.

Why? Well, as the mortgage goes down, the amount of cover stays the same so a surplus of cover builds up which could provide extra benefit for the family.

Plus, the policy holder always knows how much cover they have.

The FSA aren’t so keen on this though and there’s a good reason.

A house was worth a lot less 25 years ago which means the mortgage would have been a lot less so the amount of cover would not seem like quite as much in today’s terms thanks to inflation.

The best way to provide protection against inflation is with ‘Index Linked’ cover that goes up and so provides a comparable amount of cover, over time, throughout the term.

Usually the cover goes up and so do the payments.

So it might make sense to have one policy for the mortgage and another one for the family.

But then there’s Family Income Benefit, Waiver of Premium, Critical Illness.

Or how about Own Occupation or Work Tasks Disability Cover which could be the difference between a claim being successful or rejected….

This is just the tip of the protection iceberg and hopefully highlights the importance of really doing your research or getting advice from a specialist.

Another good reason for getting advice is based on a true story.

I recently spoke to someone who had applied for life insurance through a well known supermarket chain.

They have a mortgage of £120,000 with 18 years remaining.

An application was submitted over the phone for £115,000 of cover for 17 years.

Now I can only speculate as to how this happened and people do sometimes make mistakes but when I spoke to the applicant they couldn’t think of any reason why the ‘adviser’ had got it so wrong and they certainly seemed to know their mortgage balance and term.

Could it be the ‘adviser’ was really more of an ‘order processor’ and didn’t double check or even ask the right questions?

What’s hard to understand is an application had already been submitted with the wrong cover but there is a regulated process and the applicant should have seen or at least discussed a quote before it went that far which, would have brought the mistake to their attention.

This could be an isolated incident and I’d like to hope it is but I wouldn’t be surprised if lurking around the corner there’s an advertising slogan or an automated sales call that asks, ‘have you been mis-sold life insurance?’ or ‘Are you entitled to a refund?’

A Life Insurance ‘Trust’ Party – Bring cake…

Lucy: ‘Oh I’d love to be your trustee. It would be an honour. What time shall I come over?’

Sarah: ‘Well Catherine and Sally are getting here for about 2.30 and don’t forget to bring cake!’

2.30 arrives, pleasantries are dispensed and the ladies sit down to talk shop:

Sarah: ‘OK, so Simon and I are in the process of getting our life insurance up to date since we took out a bigger mortgage for the extension and our adviser has talked to us about putting the policy in ‘trust’

Catherine: ‘Is that like setting up a trust fund for the children?’

Sarah: ‘well sort of because the money goes where you want it to go. Let me go through my notes…

OK, it’s free to do this…’

Catherine, Sally & Lucy: ‘ Ooooh!’

Sarah: ‘Yes, I was suprised to hear that too’

Lucy: ‘What does it do?’

Sarah: ‘Well let’s see… All of your worldly possessions make up your ‘estate’ and that includes your debts too and your life insurance policies.

When you die this estate needs to be sorted out and any money or possessions you have gets used to clear any debts and then the rest goes to your ‘next of kin’…’

Catherine, Sally & Lucy: ‘ Aaaah!’

Sarah: ‘But…..wait…. That process of sorting out the estate can take months or even years so even though we have life insurance it could take weeks, months or even years before the money gets paid over to the right people.

Sally: ‘But if Simon died how would you pay for the house and the bills, let alone feeding the kids if you had to wait that long? I couldn’t do it if John died. We’d lose the house!’

Sarah: ‘That’s exactly why my adviser said there’s actually not a lot of point having a policy if you don’t put it in trust.

The trust means the life insurance policy is not considered part of our estate so it doesn’t get tied up in ‘probate’ and instead it would get paid straight away to the right people’

Lucy: ‘Why haven’t I heard about this? Where did you go for advice? We got our insurance online.’

Sarah: ‘Oh our mortgage adviser is very good and he says he always recommends insurance and trusts and any adviser that doesn’t isn’t giving their customer a good enough service.

I’d never buy my life insurance online now I’ve had proper advice.’

Catherine: ‘You’ve got me thinking now. You must give me your adviser’s details’

Sally & Lucy: ‘Yes, us too…’

Sarah: ‘I will but before I do and before we tuck into that cake let me just go through why I wanted you all here…’

Catherine, Sally & Lucy: ‘ Oh go on, but be quick!’

Sarah: ‘OK, Lucy & Sally, I need you to be my ‘trustees’. I’ve known you both since we started school and you were my bridesmaids at both weddings and there’s no-one I trust more to make sure the money from the policy gets paid to the right people.

Lucy: ‘Oh I see, we’re ‘trustees’ because you trust us..?’

Sarah: ‘Yes, that’s right. And Catherine, I need you to be my witness and sign the forms to make them legal’

Catherine: ‘Oh, OK, I can do that. No problem!’

Sally: ‘So you kind of explained on the phone but what will I have to do?’

Sarah: ‘Well I need to write a ‘letter of wishes’ which explains who I want the money to go to from my life insurance policy and how much I want each of them to get and you just need to make sure that gets done by overseeing things’

Lucy: ‘You told me that because we’re on the form, the insurance company will contact us if there is a claim and we just work with them to make sure they go by that ‘letter of wishes’ thing’

Sarah: ‘That’s it, I mean the trust form explains most of what happens to the money but the letter reinforces it’

Lucy: ‘And what do we have to do today?’

Sarah: ‘Today all you need to do is sign the form. I’ve already filled in the rest of your details, in fact, that’s all any of you need to do because I’ve filled in your names and addresses but Catherine I wasn’t sure of your date of birth?’

Catherine: ‘OK, I can fill that bit in and then all I have to do is sign it too?’

Sarah: ‘Yep, that’s it and it’s all done’

Sally: ‘That was easy’

Sarah: ‘I know, and now I know it’s taken care of, how about that cake…?’

Catherine, Sally & Lucy: ‘Yes please!’

More on the ECJ Insurance Ruling

Insurers have until December 21st 2012 to remove gender based pricing.

Will this mean they have to ignore statistics just because they could be considered gender specific?

‘Statistically’ (based on factual evidence) women live longer and young men have more car accidents.

Will these facts have to be ignored?

If you’d like to pick the ruling to pieces and try to find out what the likely impact will be, you can find it here:

http://curia.europa.eu/jcms/jcms/j_6/

Search for Case Ref: C-236/09

When it comes to the provision of healthcare section (12) states: ‘differences between men and women in the provision of healthcare services, which result from the physical differences between men and women, do not relate to comparable situations and therefore, do not constitute discrimination’.

So why are life insurance companies worried?

It also states: ‘Direct discrimination occurs only when one person is treated less favourably, on grounds of sex, than another person in a comparable situation.’

That’s the bit that is probably scaring the car insurance companies.

Put a man and a woman in the same situation on the road and if one is more likely to have an accident than the other, the price of insurance can’t reflect this.

But…

Section (19) states: ‘In some cases, sex is one but not necessarily the only determining factor in the assessment of risks insured. For contracts insuring those types of risks, Member States may decide to permit exemptions from the rule of unisex premiums and benefits, as long as they can ensure that underlying actuarial and statistical data on which the calculations are based, are reliable, regularly up-dated and available to the public.’

So if insurers can prove the statistics, they can still vary the price but they have to make the statistics public.

Great!

So all this really does is stop insurance companies generating one price based on the facts and then adding a bit extra just because of gender.

Sounds like a good thing to me!

Have they been upping prices just because of gender with no supporting facts?