Income Protection Help

    Income Protection Help

    Have you thought about what would happen if you suddenly lost your income?  How would you meet your financial commitments and make sure you and your loved ones didn’t suffer hardship?

    Income protection insurance can protect your income in the event of you being unable to work.

    The product is designed to partially replace your salary in the event that you cannot work so that you don’t fall behind with your payments.  Income Protection policies can provide you with a tax-free monthly sum that is up to 70% of your gross salary.

    Having an insurance policy to protect your income when you not able to work can give you peace of mind, and help you confidently plan for the future.

    Statutory Sick Pay

    You might be wondering why you need Income Protection if you’re currently working because you’ll be entitled to Statutory Sick Pay (SSP).  SSP does provide you with some income but it’s likely to be a lot less than your current salary if you’re off sick for a long period of time.

    Your employer may also have a sick pay policy but it may only pay out for a limited period if you’re off work due to illness.

    Income Protection Benefits

    Here are the main reasons why you should consider protecting your income:

    Your Mortgage or Rent

    If you have a mortgage, or pay rent, then you’ll want to make sure your payments are met and keep your home.

    Support Your Loved Ones

    If you have loved ones then it’s likely your income is supports them so you need to make sure that there is insurance in place to provide for them in the effect of something happening to you.

    Types Of Income Protection

    There are two different types of Income Protection policy:

    Short term Income Protection

    Short term Income Protection will pay out for a period up to 12 months and is the cheaper of the two options because the potential liability on the insurer is lower. The policy will cover up to 70% of your income in the event that an accident, sickness or unemployment means that you have no income, and these policies are often referred to as ASU (Accident, Sickness, Unemployment).

    Long term Income Protection

    Long term Income Protection will fund your lifestyle in the event that you lose your income for longer than a year.  It will provide an income for you if you’re not able to work due to illness or disability.

    The policy will pay an income until you can return to work, or until the end of the policy term, whichever is soonest.

    The key difference between short term protection and long term protection is that long term protection doesn’t usually provide cover for unemployment or redundancy.  However, long term cover is usually more expensive than short term cover because the insurer is likely to have a higher liability in the event of a claim; they will provide replacement income until your retirement age.

    Guarantors

    A guarantor might be considered when the borrower’s financial position does not fully satisfy a mortgage provider’s lending criteria.  Where this is the case, the lender may consider taking a personal guarantee to support the mortgage.

    The guarantor is not a party to the mortgage but some lenders may ask the guarantor to sign the mortgage deed.

    A guarantor enters into a separate contract to undertake to repay the mortgage if the borrower fails to do so.  Because the guarantor is entering into a collateral contract and is not a party to the mortgage transaction itself, there are no provisions in the Mortgage Conduct of Business rules relating to personal guarantees.

    Types of Guarantee

    There are two types of mortgage guarantee:

    Supported Mortgage Guarantee

    A supported mortgage guarantee requires an individual to offer security to the lender.  This type of guarantee is known as a surety.

    Unsupported Mortgage Guarantee

    An unsupported mortgage guarantee merely requires an individual to provide a promise to the lender to pay; no security is needed.

    Directors’ Guarantees

    Lenders may often require guarantees from directors when loans are made to limited companies.  The reason for this is that limited companies are considered to be a separate legal entity to the directors and, if the company is unable to meet its obligations, the lender can therefore rely on the personal guarantee of the director/s.

    Legal Advice

    It is prudent for prospective guarantors to seek independent legal advice before committing themselves to a personal guarantee because they have undertaken to commit collateral into a contract – but they are not a party to the mortgage transaction itself.

    Equity Of Redemption

    Equity Of Redemption

    The term ‘equity of redemption’ is an important right for anyone who takes out a loan.

    What does Equity Of Redemption mean?

    Equity Of Redemption confers the legal to redeem mortgage loan at any time, irrespective of any clauses contained in the contract that might say otherwise. This right applies to anyone with a mortgage or any other type of loan, and has been confirmed by common law.

    Why is this right important?

    Equity Of Redemption is important to anyone with a mortgage because the majority of mortgages are paid off before the end of the term; homeowners often move home to a larger house and need another mortgage, or downsize to a smaller house whereby they can pay off their mortgage.  These activities may take place several times in a person’s life.

    Mortgage Redemption Conditions

    Mortgage products have become increasingly sophisticated and complex in order to satisfy the ever-changing requirements of the mortgage marketplace and, just as the borrower has a right to repay at any time, the lender also has a right to impose reasonable fees and charges. It is therefore common for lenders to include conditions of redemption in their mortgage deeds such as early repayment charges (which are a feature of in fixed interest rate products)

    The Mortgages and Home Finance: Conduct of Business sourcebook rules require lenders to be clear about any fees and charges that may be imposed by including them in the key features illustration for all types of regulated mortgage contract.  It is incumbent on lenders to ensure that prospective customers are clearly alerted to any potential charges.

    Were a lender to include a condition in the mortgage that would make early repayment difficult, this condition would be disregarded in a court of law as it would be construed as an act to prevent equity of redemption.

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