Mortgage Protection Life Insurance is designed to repay the outstanding balance of a repayment mortgage in the event of death (or earlier critical illness).
A repayment mortgage is a mortgage loan where each month the interest due and some capital are repaid.
During the early years relatively little of the loan is repaid each month with larger amounts repaid later in the term.
The Mortgage Protection Life Insurance (and/or Critical Illness) premiums are determined at outset and are usually guaranteed for the term of the policy. Reviewable premium plans are available, but again these are not widely sold. The graph below shows how the sum assured falls over the policy term in the same way that the amount of capital outstanding on a repayment mortgage falls over time.
Not all mortgage protection life insurance and critical illness insurance plans pay the same amount on claim. This is because the different insurance companies use different ways to work out how the life cover should fall over the term. There are basically two ways that are in common use.
The first method……is to assume a fixed mortgage interest rate, typically 10%, and reduce the amount of life insurance and critical illness cover in line with this assumption. This means that irrespective of the mortgage amount outstanding, the life insurance and/or critical illness insurance payable at claim will be that which would have been payable assuming the mortgage had been run at an interest rate of 10%.
You can see from the graph below that the amount payable during the life insurance term increases with interest rate. A policy that assumes an interest rate of 10%, pays more than a policy that assumes an interest rate of 5%, half way through the plan term.
Also it is worth noting that the life insurance or critical illness insurance payout is not linked to the mortgage and may therefore payout more than the outstanding balance if average interest rates have been lower than the assumed interest rate of 10%, or less if interest rates had been higher than the assumed rate. Furthermore the life insurance cover or critical illness insurance cover will be paid irrespective of whether there is a mortgage outstanding or not.
The second method……is to guarantee the repayment of the outstanding balance of the mortgage, irrespective of interest rate. This method offers guarantees but is usually subject to certain criteria. These can include, ensuring that the mortgage protection plan is set up for at least the amount of the mortgage outstanding in the first place, and over the same term. Furthermore mortgage payments must be up to date at the date of claim, which could be more of a problem if the claimant has been unable to work for a period due to ill health and has become behind with mortgage payments just before death. Under these circumstances if there is no mortgage in place when a claim is made then the policy usually works as per method one above but might assume quite a low interest rate (typically 5%) to work out the sum payable.
24 May 2007 12:53:34
A distribution partnership has been signed between Barclays Bank and life insurance firm AEGON UK, with the insurer joining the bank's 'Select Choice' panel of providers.
AEGON products will be made available to Barclays' national network of Financial Planners, marking the most significant British banking deal made by the Dutch firm.
Otto Thoresen, chief executive of AEGON UK was thrilled with the announcement, which will include the '5 For Life' variable annuity retirement solution.
"This new partnership with Barclays is an important development for AEGON in the UK. It…will enable us to reach a broader customer base with products where we have a compelling proposition."
Stephen Ingledew, commercial director for Barclays Financial Planning echoed Mr Thoresen's comments: "We're delighted to welcome AEGON onto our Select Choice panel. With these new dynamic and exciting products, Barclays Financial Planning will continue to offer customers marketing leading solutions that meet their most important financial solutions."
AEGON UK is one of the biggest life insurance firms in the world, with assets of around £49.8 billion.
16 May 2007 12:13:39
Heart Research UK has stressed that low tar, 'light' cigarettes are equally as dangerous as full-strength cigarettes and just as likely to cause a heart attack.
A study to be published in medical journal Heart has shown that even in low tar cigarettes, blood flow to the heart is still blocked to a hazardous extent.
Denise Armstrong, a spokesperson for the charity, said that there was a widespread misconception amongst the UK public that smoking 'light' cigarettes is less threatening to your health.
"If you talk to the man in the street, they'll say: 'I smoke low tar ones, I'm OK'. But that's not the case. Research is now saying that even the low tar cigarettes have enough tar in them to cause health problems; so it's not just the fact that many of the chemicals in the cigarette are still at the normal level, it's that even the lower tar levels cause damage."
She noted: "It's not just the tar in the cigarette [that causes damage]: there are over 4,000 chemicals and nicotine is one of the bigger culprits when it comes to heart health."
The study, by scientists at Turkey's Baskent University, showed that hypertension and heart rate rose regardless of the tar content of the cigarette smoked, with the risk of heart attack increased in both cases.
17 September 2007 16:37:15
Top life cover firm Friends Provident has instigated plans to guard the progress of its proposed merger with Resolution.
While Friends Provident needs the support of just half of its shareholders for the merger, Resolution requires a 75 per cent approval rating.
As rival firm Pearl holds a 16.5 per cent stake in Resolution, the deal could be blocked.
However, a recent announcement implied that the firms will perform a role-reversal, with Resolution needing just 50 per cent of shareholder support.
Friends Provident should have little difficulty in gaining the 75 per cent approval rating required under the changed arrangement, which was announced last week.
Resolution Chief Executive Mike Biggs told the Associated Press that changing the terms "allows the transaction to proceed without disruption, in the absence of any competing offer for Resolution."
The new agreement means that Hugh Osmond, head of Pearl, will be unable to block the Friends Provident offer and will have to launch his own bid for Resolution.
Direct Life and Pensions Services Ltd are one of the UK's leading providers of life insurance, term life assurance, mortgage protection, and critical illnesslife insurance policies online.
