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Life insurance – is it time to review your plans?

We all experience life-changing events such as moving to a new home and taking out a bigger mortgage, getting married, having children, retiring, but how many of us remember to update our protection policies to cover the financial commitments these all bring to our lives? It’s easy to overlook the need to review your cover when your life moves into a different gear.

Do you have the right type of cover for your needs?

However, forgetting to review your cover could mean that your family wouldn’t have sufficient money to repay the mortgage and meet the bills if something unexpected were to happen to you. It could also be the case that the type of policy you currently have has been superseded and there may now be more costeffective options available to you.

Life insurance policies combined with other cover can protect your finances, your home, and your family in the event of incapacity, a serious illness, an accident or death, so it’s important to make sure that as your life changes, your cover changes to match your circumstances.

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Homeowners choosing to improve rather than move

Once upon a time, homeowners moved four times after their first purchase; now it’s more like twice. New evidence suggests that in England and Wales, many more of us are putting down roots and choosing to stay in our current homes for longer.

Research1 carried out by Dr Ian Shuttleworth of Queen’s University Belfast points to a major cultural change, and highlights that at least a million fewer people moved between 2001 and 2011 compared with 1971 to 1981.

Staying put and renovating

This trend is borne out by recent research from insurer Hiscox2. They have identified a five-fold increase in the number of homeowners who have chosen to renovate their existing home in the last five years. The choice to renovate rather than move is likely to be influenced by a range of factors such as the continued rise in house prices in some regions, predicted rises in interest rates, the additional costs such as stamp duty, the lack of suitable property on the market, tighter mortgage lending criteria and the economic uncertainty that arose after Brexit. In addition, in some parts of the country property prices have hardly moved, meaning that families can find themselves held back because they have made little or no profit on their existing home.

In 2013, the research2 showed that just 3% of homeowners chose to improve as an alternative to moving, but five years later, this figure has risen to 15%. Local council figures show that requests for planning permission have risen by 29% in the last ten years.

Outwards and downwards

People are increasingly looking to adapt their property to meet their changing needs, with an extra bedroom high on the agenda of many families. Unsurprisingly, loft extensions head the list of alterations having increased the most, up by 114%. As reports in the media have highlighted, digging out basements to create extra accommodation is becoming increasingly popular, especially in fashionable parts of London.

1Queen’s University Belfast, Fewer people moved house in the ‘00s than the ‘70s, 2018

2Hiscox, Renovations and Extensions Report, 2018

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You are insured, aren’t you?

If you’re a homeowner, it makes sense to have plans in place that protect you, your family and your home. Insurance policies are designed to provide financial safeguards and valuable peace of mind.

LIFE INSURANCE TAILORED TO YOUR NEEDS

Life policies provide a tax-free cash lump sum for those you leave behind in the event of your death. If you have a mortgage, it’s a big financial responsibility and no one would want to leave their family with money worries at a sad and difficult time.

There are other types of plan that protect growing families, such as critical illness cover, which means that if you are diagnosed with a serious illness as defined in your policy, there’s a cash payout to help alleviate financial worries. Income protection policies provide an income should you suffer an accident or illness and be unable to work. Accident, sickness and unemployment policies provide a monthly payout that would help pay your mortgage and other living costs in the event of an accident, sickness or involuntary unemployment.

PROTECTION FOR YOUR VALUABLE POSSESSIONS

Buildings insurance covers you for damage to the structure of your home. When you take out a mortgage, your lender will require that you have buildings insurance in place, and that it covers the cost of rebuilding the property and its permanent fixtures and fittings. The rebuilding cost isn’t the same as your property’s market value, it’s generally a lower figure which will be detailed in your lender’s valuation report or arrived at by using an online calculator.

Unlike buildings insurance, mortgage lenders don’t insist that you have cover for your home contents; however, it makes sense to protect them against risks like burglary, fire and flood. You can also arrange insurance for valuable items like jewellery, and those belongings you use away from home, such as laptops.

If you could use some help in ensuring you have the right protection policies for your needs, do get in touch.

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Mortgage options for the over 55s

Following the Mortgage Market Review in 2014, banks and building societies were required to adopt stricter lending criteria and affordability checks, and as a result many lenders restricted both their maximum borrowing and repayment age.

FACTORS TO TAKE INTO CONSIDERATION

Whatever their age and circumstances, older borrowers will need to go through the usual checks to ensure they can afford to make their monthly mortgage repayments. They will need to show proof of income and declare all outgoings, including any debts.

Lenders will need to consider issues that could affect an older borrower’s income, such as their state of health, and in the case of joint borrowers, what would happen to their finances if one of them were to die.

On the other side of the coin, older borrowers can often be free of other commitments that can burden younger borrowers – they are further into their careers and probably earn more, their children may have left home, and many may have already come into money through a family inheritance. Plus, it can be easier for a lender to assess whether a loan is affordable in the case of a potential borrower who is in receipt of a pension, as opposed to one who is likely to retire half way through the mortgage term.

TAKING ADVICE IS KEY

Getting advice from a mortgage adviser can really help. We know the lenders in the marketplace and the criteria they operate under, and so are able to ensure that your application goes to one that caters for your specific mortgage needs.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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Celebrating 20 years of the ISA

The Individual Savings Account (ISA) was launched on 6th April 1999 and it hasn’t looked back. Today it’s estimated that 42% of adults hold one, which is hardly surprising considering how simple and tax-efficient they are.

When the ISA was launched, the annual allowance was £7,000 and it has risen steadily over the years. In this tax year, you can contribute up to £20,000 to an ISA or ISAs. Those who have made use of their stocks and shares annual allowances over the years could by now have put just over £206,000 into their ISA accounts.

A range of tax-free options

At the beginning there were a limited amount of accounts on offer, including the cash ISA and the stocks and shares ISA. Since then, the range has increased to include the Junior ISA for children, the Help to Buy ISA for first-time buyers, and the Lifetime ISA for those looking to save for a deposit on a property or for retirement.

If you’re planning to save this tax year, it’s a good idea to put plans in place as early as possible. The longer your money is saved or invested, the more time it has to produce tax-efficient returns.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

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How can you pay for a mortgage if you lose your income?

Losing your income can be a major financial upset. However, there are policies designed to protect your income in this situation, giving you valuable peace of mind.

Income protection

These policies are designed to replace a proportion of your income should you be unable to work due to an accident or illness. You can also get policies that will cover you if you are made redundant, although these will cost more. Long-term income protection will cover you until you reach retirement, while shorter-term income protection policies are cheaper and will only pay out for a set period of time.

Mortgage payment protection

This will cover your loan repayments for a set period, generally up to two years if you lose your job or have an accident or illness which leaves you unable to work.

Critical illness cover

This pays out a lump sum if you develop one of a range of serious medical conditions listed in the policy. The conditions covered are very specific and normally include certain types and stages of cancer, strokes and heart attacks, but each policy is different. It can be bought alongside life insurance or separately.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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When will you retire?

New research4 has shown that one in 10 workers expects never to be able to afford to stop work and believe they will have to keep on well into their retirement years. This survey also reports that 58% of respondents think they’ll need to take on some form of work, in order to supplement their retirement income. Today, many older people are staying on in the workplace, with a record 10.4 million workers aged over 50 still employed.

Retirement should be enjoyed, not endured

Other research has shown that as few as one in three of us expects to have the same standard of living in retirement as we enjoyed during our working lives. This highlights the need for early pension planning, including drawing up a budget that shows you how much income you’ll need for a comfortable retirement. With a full State Pension likely to be worth around £8,000, and qualifying ages on the rise, there’s clearly the need for extra provision to ensure that you have money available to enjoy life.

4ING, Feb 2019

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In The News

75% OF OVER-50s AREN’T SAVING FOR CARE

New research3 shows that although 60% of those surveyed feared losing their savings and homes to pay for care fees, less than a quarter of adults aged over 50 are making any provision for later-life care. As people are living longer, it’s estimated that more than 143,000 older people, over a third of the 421,000 people currently receiving residential care, could face paying fees of £100,000 or more for their care.

RETIREES IN THE DARK ABOUT ENHANCED ANNUITIES

Buying an annuity is a way of providing a guaranteed income in retirement, but 70% of people questioned for a recent survey4 were unaware that if they were to be suffering from poor health at the time of purchase, they might qualify for higher levels of income.

Enhanced annuities pay higher rates based on your lifestyle or medical history. Factors such as smoking, diabetes, high blood pressure and heart disease could boost your income as a result of reduced life expectancy. Those suffering from conditions such as asthma, high cholesterol and obesity may also qualify for higher levels of income, depending on how serious their condition is.

3Independent Age, April 2019
4HL, April 2019

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GETTING COVER FOR NON-STANDARD HOMES

With buildings insurance, part of your premium is based on what it would cost to rebuild your home from scratch if it were to be destroyed by perils like fire or flood. If your property is constructed largely from materials such as timber, concrete or straw, rather than the more traditional bricks and tiles or slate, then some insurers consider it as ‘non-standard’.

Happily, this doesn’t mean that you can’t get insurance, rather that you’ll need to find a more specialised insurer. We can help you find the right deal for your property.

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Why mortgage protection insurance makes sense

Life can be expensive these days. The list of bills families have to pay is a long one and it soon adds up; there’s the mortgage, council tax, food and energy bills for starters. And then there are often credit card bills, personal loans, transport costs, holidays and perhaps school fees too.

So, if your children, partner or other relatives depend on your income to cover the cost of paying the mortgage, then it makes financial sense to think about the protection and peace of mind that a policy could provide. Being able to claim on a policy could mean the difference between your family struggling to make ends meet and being financially secure. Despite this, many of us simply don’t have any protection policies in place, which is sometimes hard to grasp when you think how vulnerable we all are to ill-health and accidents.

YOUR POLICY OPTIONS

There are various kinds of policies to choose from. Term insurance pays out when the policyholder dies within a set period of time. Term policies come in different forms, such as level term insurance, where the amount of cover remains constant throughout the policy. Decreasing term insurance, where the amount paid out reduces over the term, is often taken out alongside a repayment mortgage, with the sum assured reducing along with the outstanding mortgage debt.

Whole-of-life policies provide cover that lasts a lifetime. This type of policy doesn’t normally have an end date, so premiums are generally paid until you die, at which point the policy will pay out (sometimes premiums end at a certain age, but the cover continues until death).

Some families might need the security of a regular income in the event of the death of a breadwinner; a family income policy which provides a monthly tax-free payment until the end of the agreed term is a good way of securing this.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

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Oakhill IFS Ltd | 94 Kingsway, Woking, Surrey, GU21 6NR
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Phone: 01483 750575 | Email: enquiries@oakhillifs.com

Oakhill IFS Ltd is registered in England and Wales no. 3864703. Registered office, 94 Kingsway, Woking, Surrey, GU21 6NR.

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