LIFE INSURANCE – DOS AND DON’TS
When a loved one dies, the loss and turmoil experienced is traumatic enough but when the practicalities kick in, this loss can be compounded by the potential loss in income. Main breadwinner or stay at home parent, the financial implications can be huge.
Statistics show that sadly one in 29 children will lose a parent, therefore a top financial planning priority should be making sure your dependants are provided for should something happen to you; life cover can provide an affordable solution.
Finding the right policy for you and your family
A main consideration should be the level of cover you require.
When deciding this make sure that all of your main debts, regular outgoings and potential future costs are covered, including your mortgage, outstanding loans, credit card debts or education fees for example.
Life cover protection is generally recommended to provide 10 times the main breadwinner’s income. This is paid tax-free, but is added to the deceased’s estate. If there are IHT implications the policy may be written in trust. The term should reflect the needs of your dependants; children will probably require financial protection until they leave full-time education and a partner may need the cover to last until pensionable age.
Other tips include
- Arrange a policy as soon as possible by taking out a policy when you’re younger the premiums are likely to be lower
- Make sure you do not conceal or falsify any facts as this could lead to disputes at the time of a claim, e.g. be honest about your health and lifestyle
- Take advice to discover the relevance of joint or single cover to your circumstances
- Remember to review your policy regularly to see it is still relevant, it may require updating if your circumstances alter.
Keep it simple
With a variety of life cover products available, a straightforward level term life insurance policy – where a pre-decided lump sum is paid out on death (or under many policies on diagnosis of a terminal disease) within a stated period of time – is among the simplest and most affordable to arrange.
Your adviser can help find an affordable policy for most circumstances.
LIFE COVER PROTECTION IS GENERALLY RECOMMENDED TO PROVIDE 10 TIMES THE MAIN BREADWINNER’S INCOME. THIS IS PAID TAX-FREE, BUT IS ADDED TO THE DECEASED’S ESTATE
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HOME INSURANCE – CHECK NOW OR PAY LATER
When your home insurance policy comes up for renewal, it’s often tempting just to stay with your current provider, not least because it’s often quicker and easier to do that than spend hours checking comparison sites or ringing round insurance companies for a policy quotation.
However, many people have found that by staying put, their premiums have risen steadily over the years, and their policy no longer represents good value for money.
Why good advice pays
So, when it comes to your next renewal, don’t automatically renew your policy with your current insurer. If you’re keen to find a better deal, or need help deciding what level of cover is right for you, then your best course of action is to ask your adviser to find the most suitable deal for your needs and circumstances.
Advisers give impartial advice and know in detail what the policies offered by a whole range of insurers in the market place provide by way of cover. Enlisting their help will save you time, money and stress, and give you the peace of mind that you’re paying the right premium for the correct level of insurance. Advisers are expert in interpreting jargon and will be able to explain any technical terms or policy conditions you are unsure about. As they are normally paid a commission from the insurance provider, you won’t pay them a fee for finding the right policy.
Cover in special circumstances
Your adviser’s help can be invaluable if your insurance needs are a little out of the ordinary. For instance, if you want cover for a home that isn’t of standard construction, a thatched cottage or a houseboat, they will know which company to go to. They can also help you find the right insurer for home contents such as valuable antiques or jewellery.
WHAT RATE DO YOU PAY ON YOUR MORTGAGE?
If that question had you stumped, you are not alone. One in three borrowers was unable to give the correct answer in a recent survey1.
When it comes to knowing their numbers, mortgage holders in Wales were the most aware at 79%, compared with 65% in London and 63% in the South East.
Those who knew the exact rate they were paying were also more knowledgeable about how their family finances would be impacted if rates were to rise.
With mortgage payments making up a large chunk of household budgets, it can pay to consult a mortgage broker to ensure that you have the best deal at an affordable price.
If you’re concerned about the impact that a rate rise might have on your finances, then it’s a good idea to set up a mortgage review with your adviser.
1 YouGov, 2016
MORTGAGE AGE LIMIT RISES TO 85
There’s good news for older borrowers as more lenders are now prepared to offer loans with an upper age limit for final repayment of 85 years.
Former Government Minister and financial campaigner, Ros Altmann, has often drawn attention to the plight of those over 55 looking for home loans, commenting that they are “facing age discrimination in the mortgage market, with companies refusing to lend purely on the grounds of their age, rather than their income”.
Since the introduction in April 2014 of tighter affordability criteria, part of the government’s Mortgage Market Review, many high-street banks and building societies adopted a cautious view when it came to lending to older borrowers. This was especially true where the mortgage loan would be repaid after the borrower’s retirement.
Why change is overdue
Rising house prices and the time it takes to amass a sizeable deposit have meant that house purchase decisions are made later in life. Many older couples are divorcing, remarrying and buying new properties. The changes to pension rules mean that more cash can be released earlier, and tax-free lump sums have been a contributory factor in the recent rise in buy-to-let property purchases.
The death of a spouse is considered by many to be one of life’s most stressful experiences, bringing with it many immediate and longer-term consequences that can be devastating. Losing your partner when you’re young creates additional practical and emotional problems, especially if you have children.
Death can be a tough subject to talk about. Anyone who has followed the Adam Golightly diaries in the Guardian will know how traumatic it can be to face life bringing up two small children following the tragic death of a wife at a young age.
RESIDENTIAL PROPERTY UPDATE
The UK housing market continued to be buoyant in the first quarter of 2016. Activity was fuelled by the rush to complete buy-to-let property transactions before the stamp duty change on second properties came into effect in April. Consequently, house purchase activity experienced a sharp fall in April, which was especially evident for buy-to-let.
Director General of the Council of Mortgage Lenders (CML), Paul Smee commented on recently released April lending statistics, “There is a sense of calm after the storm this month, as lending eased back, following the significant rises in activity in March as borrowers looked to beat the second property stamp duty deadline. We expect the market to take several months to return to its previous levels after the lending surge.”
London prices declining
In London, house prices are already declining in parts of the capital, a trend that the Royal Institution of Chartered Surveyors1 (RICS) expects to continue over the next few months. How much of this is due to the postponing of planned purchases ahead of the outcome of the EU referendum is hard to gauge, but elections of any sort are notorious for putting a temporary hold on housing market activity.
The outlook for the rest of the year
The uncertainty post the Brexit vote is likely to affect many factors impacting the property and lettings market. Prior to the vote David Cameron warned mortgages could rise by £1k per year; many now expect interest rates to be cut, possibly to zero, so costs could actually fall.
Negative investor sentiment hit immediately after the vote, as shares in estate agents and housebuilding firms collapsed. It’s too early to determine the full effect of Brexit on property transactions and valuations; the ramifications will unravel over time. Lucian Cook, UK Head of Residential Research at Savills commented: “With the results just in, it is impossible to predict what will happen to the UK housing market with any great accuracy until we know what Brexit will mean for the wider economy. What we do know from lead indicators, is that uncertainty pre-referendum impacted on new buyer enquiries. A continuation of that uncertainty is likely to pull back price growth and transactions in the short term.”
The CML concur that one of the first elements of the market likely to be affected is property transactions, which will in turn dampen house price growth; while this uncertainty will linger for some time, house prices remain underpinned by sound fundamentals. They believe there will be particular uncertainty in the prime London market, where a higher proportion of buyers are foreigners, who may delay their purchase to assess the impact of the referendum result. However, the CML believe the characteristics of the UK housing market are unlikely to change dramatically in the near term, as there will continue to be a mismatch of supply and demand, stretched affordability and a relatively low number of home movers.
1 Royal Institution of Chartered Surveyors, UK Residential Market Survey, April 2016
Your home or property may be repossessed if you do not keep up repayments on your mortgage. 7