Protection

Overview

Building and Contents Insurance

What is home insurance and what does it cover? There are three main types of home insurance: buildings insurance, contents insurance, and combined buildings and contents insurance. Buildings insurance covers the structure of your home – for example, your walls, windows and roof, as well as permanent fixtures and fittings, such as baths, toilets and fitted kitchens – while contents insurance covers the possessions in your home. Combined buildings and contents cover, meanwhile, covers both. As well as covering you for theft, home insurance also protects you against damage caused by a number of unforeseen events, including flooding, fires and explosions. Is accidental damage covered?

Limited accidental damage is covered under some home insurance policies, but more comprehensive cover for accidents costs extra. Your contents policy may protect you for mishaps that damage your stereo equipment, while your buildings insurance may include cover for windows and skylights. However, if you want full cover for accidental damage, you will need to pay extra depending on your policy and the value of your items. What is personal possessions cover? You can use your home insurance to cover your portable items, such as your handbag, mobile phone or tablet, while you are outside of the home and overseas under a personal possessions extension (sometimes called an all-risks extension).

However, there are restrictions on what’s covered, so check with the insurer to make sure you know what you are paying for. What happens if I leave my home unoccupied? As leaving your home empty is likely to make it more at risk from thieves and more susceptible to damage, insurers can restrict your cover in these circumstances. Most insurers will cover your home on the condition that it will not be left unattended for more than 30 consecutive days, so, if this is likely to be the case, let your insurer know.

What other exclusions should I look out for? As well as not being covered if you leave your home unoccupied for a long period of time, there are a number of other exclusions that are likely to apply to your insurance policy. With high-value items, there is usually a limit on the amount of cover that can be placed on these, such as jewellery or audio-visual equipment. If you have expensive possessions, check your policy carefully. If you’re running your business from home, certain policies won’t cover any liability from your business / trade, if you run it from your home.

Life Assurance

Put simply, life insurance is a policy that pays out an amount of money if the person covered dies. In the same way that home insurance covers your property, life insurance covers your life. While the specifics of a policy will vary from insurer to insurer and policy to policy, they will pretty much fall into one of the following types:

• Cover for a specific amount of time –for example 15 or 20 years. These policies pay out if the person covered dies within that period of time.
• Cover for the whole of life – these policies pay out whenever the person covered dies.

Within these two types of cover, it is also possible to choose a cover type. Such as:

• Level cover, where the amount paid out stays the same.
• Decreasing cover, where the amount paid out decreases over time.
• Or increasing cover, where the amount paid out increases over time.

Generally, the amount paid following a claim will be a one-off sum of money. Some policies will make payments in instalments. You may also find policies have other options, either included at no extra cost or selectable at an additional cost. Examples would be:

• Terminal illness cover – where payment could be made if a terminal illness is diagnosed.
• Waiver of premiums – where the premiums are paid on the policyholders’ behalf if they are unable to work due to illness or injury.
• Critical illness cover – where payment could be made if a critical illness is diagnosed. (This is also explained further down).
• Life event changes – the ability to change cover if your situation changes.

These benefits vary from company to company, so it’s always a good idea to check the details carefully before buying a policy. Once you’ve made a decision about which policy’s right for you, you’ll need to make an application. Insurers usually need to assess that application before deciding if they can offer you cover. It’s important to be honest when completing your application. The most common reason for insurance claims being declined is that questions weren’t answered in full, or they were answered incorrectly. If the insurer can offer you cover, they’ll confirm how much it’ll cost and what you’ll be covered for. The price you pay will be based on:

• Your age.
• Your health.
• How long you want the cover for.
• The level of cover you need.
• Smoker status.

With most types of life insurance, you have to carry on paying the premiums continuously. If you stop paying premiums, the cover ends and you get nothing back. In many cases the cover can last for many years and, as a result, it’s vitally important you make sure you’re buying the right policy. Most life insurance policies do not have a cash in value.

Critical Illness

• Critical illness – Critical illness cover is a form of insurance which pays out a tax-free lump sum in the event that you are diagnosed with a specified illness or medical condition during the term of the policy.
• Tax-free pay-out – The policy pays out a tax-free lump sum if you are diagnosed with one of a list of serious conditions within the policy term. For example, if you take out a 25-year policy with a sum insured of £100,000 and suffer a stroke at any point during that period, you would be able to claim the £100,000.
• Financial lifeline – You can spend the money how you wish, so you could use it to clear any debts, pay for medical bills or to adapt your home to your particular needs. In other words, it can offer a financial lifeline in a time of crisis. You could also invest some or all of the lump sum to generate an income for your family to live on.
• Cover for children – Many insurers also offer children’s critical illness cover at no extra charge, though the pay-out is usually limited to between £10,000 and £25,000.
• List of conditions – With critical illness cover, you should always read the small print carefully so that you understand exactly what the policy covers. The list of conditions can be long, with some insurers including more than 60 ailments and injuries. But you might not get a pay-out unless the illness is particularly severe or results in permanent symptoms. Some forms of cancer for example, are not included because they are easily treatable. You might also be unable to claim for cancer until it has reached a specified stage. Similarly, a mild stroke or mild heart attack could be excluded on the basis of severity. So it’s always important to know what ‘exclusions’ are listed in the policy small print.
• Single pay-out – Most policies pay out only once. However, a number of insurers will make a small payment if you are diagnosed with a less severe illness. The policy will then continue and you could, in theory, lodge a further claim if you were diagnosed with a critical condition at a later stage.
• Premium payments – Critical illness policies stop providing cover if you stop paying the premiums. You should therefore be certain that you can afford the insurance at the outset. There is no cash-in value to critical illness cover, so you don’t get any money back if you survive to the end of the term or stop the policy part-way through.
• Bringing costs down – Premiums for critical illness cover depend largely on the likelihood of a claim. So, the older and more unhealthy the applicant, the higher the premium. You can often bring down the cost by adopting a healthier lifestyle, for example, by losing weight or quitting smoking.

Income Protection (Permanent Health Insurance)

Income protection insurance is a policy that protects you against loss of income due to unemployment, illness or accident. It could provide you with a tax-free income and could continue to pay out until you are able to return back to work or retire. 

These insurance policies are designed to help you pay your bills if any of the above should happen, so that you can maintain your standard of living while you’re not able to work. By paying a monthly premium, if any of those circumstances were to happen, your policy would kick in to allow you to cover your bills, such as your monthly mortgage or rent, loan/credit card repayments or utility bills. Depending on the income protection policy, there are different benefits available such as:

• Bill protection – this does exactly what it says on the tin – covers your monthly outgoings like loans, credit cards and household bills. This policy typically runs for 12 months and will start if you have an accident, a prolonged illness or become unemployed (as long as you’ve selected the right type of cover).
• Loan protection – if you’re unable to work because of having an accident, having a prolonged illness or becoming unemployed, this policy could cover your loan repayments and other financial commitments.
• Mortgage protection – much like the others, this policy comes into effect if you’re unable to work due to an accident, sickness or unemployment. At that point, it could pay your mortgage repayments during your absence of work.
• Salary protection – this policy could replace up to 70% of your salary, if you are unable to work due to an illness, accident, or become involuntarily unemployed.