Part of our ‘stay safe and stay smart’ campaign naturally includes insurance. With the cost of living skyrocketing, we look at which insurance you really need, plus how to save money without facing expensive premiums.
- Income Protection Unfortunately, many people often avoid this one. The thought is very scary. Imagine losing your income due to illness or injury. However, if you get caught out, you could be in a serious position. Instead, choose a policy that provides enough coverage to maintain your current lifestyle even if you can no longer work.
While income protection insurance and employers’ liability insurance both pay for disabilities, income protection is not limited to disabilities or injuries at work.
- Life Insurance Life insurance protects your loved ones who are financially dependent on you. If your parents, spouse, children, or other loved ones would face financial hardship if you died, consider how much you earn each year (and how many years you plan to remain employed). Then purchase a policy to replace that income in the event of your untimely demise. Factor in the cost of burial too, as unexpected costs can burden many families.
- Private Medical Insurance Despite having the incredible NHS in the UK, health insurance should be high on your list. Often, policies can collaborate with some services available on the NHS, saving you money. This could be due to long wait times, the unavailability of specialist doctors, or the kind of hospital care you require, such as a private room. Having five-star service is particularly important when searching for a diagnosis or if you are unwell.
Don’t wait until you need it to take out a policy. Many insurances have a waiting period, and you may not be able to get insurance if you have a pre-existing condition.
- Homeowner’s Insurance or Renter’s Insurance We don’t need to tell you this twice, but imagine having to pay to replace all your furniture, appliances, or clothes. The cost would be much higher than taking out homeowner’s insurance or renter’s insurance! Equally, can you afford to rebuild your house while still paying the mortgage? It’s a no-brainer.
- Car Insurance Last but not least! Car insurance is a must in the UK. In fact, it’s illegal to drive without it. However, coverage can vary depending on your policy, so ensure you are completely protected.
How to save money when buying insurance:
- Check that the policy covers what you need and doesn’t include unnecessary items that increase the price. Check exclusions and excess amounts.
- Always answer the insurer’s questions honestly; otherwise, you may waste time buying cover.
- Before auto-renewing, check for a better, more competitive deal elsewhere.
- Renew as early as possible to get the best price.
- If possible, consider paying annually; it can be more expensive to pay your premium monthly by direct debit.
- If your needs are complex, find an insurance broker through the British Insurance Brokers’ Association or consult your financial adviser.
- Instead of buying expensive mobile or appliance cover, consider self-insuring: Save the money it would cost to replace the item in a savings account, and keep it if you don’t need to use it!
Do you have time to answer our quick poll? Do you have any of our top five insurances? a. Yes – all five! b. Some, but not all (they are…) c. No, I don’t have any, but I know I need to. Send me more information!
[Insert contact details]
4. How to reduce risks when taking out a lifetime mortgage
So, you’ve heard of lifetime mortgages, and you are at a stage in life when your finances need a little boost. It’s ideal for adding value to your home, such as for a renovation, taking the dream trip you’ve always wanted, or accommodating new grandchildren.
Naturally, you have some questions — and potential concerns — about releasing money from your biggest asset. Who pays it back? And will your family be left in a shortfall?
We answer all these questions. But as we always say, speak to us directly if you need detailed advice. We are here to support you. Simply hit ‘reply’ to this email, and we’ll get back to you as soon as possible.
In short, equity release or a ‘lifetime mortgage’ is when you take out a loan against your property, which is repaid from the proceeds when it is sold. The amount you can borrow depends on your age and the value of your home. You need to be at least 55, but the older you are, the more you can borrow. The maximum you can borrow is around 60% of the house’s value.
Let’s delve into the top risks associated with a lifetime mortgage…
Q. Isn’t the interest rate really high on lifetime mortgages? A. It depends on the type of mortgage you take out. You can opt for a lump sum, where interest is charged on the entire amount at a fixed rate, or take chunks as needed, paying interest only on the money withdrawn. By spreading out what you borrow in this way (known as ‘drawdown’), you reduce the impact of compound interest.
Q. What will my family be left with if I release equity? If house price growth remains strong throughout the lifetime of your mortgage, you may still have a significant amount of equity in your property even after repaying the outstanding debt.
However, the opposite scenario is possible too. Although you will never have to repay more than the value of the property, members of the Equity Release Council must comply with its ‘no negative equity guarantee’. This ensures that your family will not have to cover any shortfall if the property’s value is less than the outstanding loan when it is sold.
Q. Do I end up out of pocket if I repay the loan early? Repaying your loan early often incurs an early repayment charge, which can be as high as 25% in some cases, depending on how long you’ve held the loan. If you want to make partial repayments, some lifetime mortgages meeting the Equity Release Council’s standards allow this penalty-free, typically up to 10% of the loan per year.
However, you can often switch your lifetime mortgage to another provider offering a lower interest rate and save money.
Q. Is a lifetime mortgage expensive? Additional fees are likely to be charged in addition to the interest you pay, which can range from £1,500 to £3,000 depending on the plan. These may include application fees, legal/solicitor fees, valuation fees, or adviser fees, though they may be included in the process. Be sure to check with your adviser.
Q. Can I move house if I have taken out a lifetime mortgage? A lifetime mortgage can be transferred to a new property if the lender agrees that the new property is suitable. Homes within retirement complexes may be harder to sell. However, even though your loan is secured against the property, it remains your property, and you cannot be evicted.
The good news is that you don’t have to weigh up the pros and cons yourself. To get regulated advice, you must seek advice from a qualified equity release adviser as required by the Financial Conduct Authority. Chat with us today if you are considering a lifetime mortgage.
This is a lifetime mortgage. To understand the features and risks, request a personalised illustration. Make sure this mortgage meets your needs if you want to move or sell your home or want your family to inherit it. If in doubt, seek independent advice. Mortgage advice may incur a fee depending on your circumstances.
Sources: https://www.which.co.uk/news/article/5-common-equity-release-myths-aihPd9U41ZRT https://www.which.co.uk/money/pensions-and-retirement/you-re-retired/what-is-equity-release-aWHbh3k7xmWk
