2nd July 2018
With Spring marking the end of the financial year, ensuring that your tax affairs are in order takes priority over all other things! We understand. Summer then becomes a perfect time to take stock of where your finances are at and check that your insurance and mortgage is still suitable for your circumstances. You could be paying too much or require more cover.
We recommend to our clients to review their mortgage and insurance cover every couple of years for a number of reasons. Firstly, when it comes to mortgages, many are designed on a two year fixed interest rate. It’s wise then to check in, at the end of that period, on what your options are for payments going forward. With insurance, the changes that might need to be made to your policy are related to your change in circumstances as this can vastly impact the amount of cover you need.
Use the brief guide below to establish what it might be worth reviewing with us.
As described, it’s common for your mortgage rate to have a fixed interest rate period of around two years. If you don’t review your mortgage at the end of that period, your interest rate will automatically jump to your lender’s standard variable rate.
To put that into context:
Say you borrowed £150,000 from Halifax and are due to pay it back over 25 years. When you took out the mortgage you were on a 2 year fixed interest rate of 1.9%, making your monthly payments £627 per month. If you do nothing at the end of the 2 years, your interest rate will change to their current standard variable rate of 4%, making your monthly payments jump to £748.*
We know that as a Contractor you are busy, so it’s wise to arrange a conversation with us a couple of months before your fixed rate period ends so we can work out if we can get you a better deal than what the standard variable rate with your current lender is.
It’s a change of circumstances that could determine if you need to change what your life insurance looks like…
Have you had children since you took out life insurance?
You’ll need to revise your cover as it’s likely you’ll want to ensure that in the worst case scenario your insurance won’t just pay off the mortgage but will cover the cost of bringing up your children.
Has your income increased?
In this instance it’s likely you’ll need to increase your cover so that your life insurance takes into account your projected income earnings in the worst case scenario.
Have you separated from your partner?
If this is the case, it might be that you need to change your policy to reflect who you would now want your life insurance pay out to go to. Or, it might be right for the cover to be lowered as you are no longer looking for your life insurance to provide a sustained way of life for your partner.
Have you received inheritance or another financial gift and been able to pay off a lump sum of your mortgage?
You might be overpaying for your insurance. If your mortgage has significantly reduced, it might be that you have the opportunity to lower your premiums as you are no longer looking to secure as much cover.
Have you just started contracting?
If you’re new to the contracting world and have set up a LTD company, you could benefit from Relevant Life insurance. Put simply, Relevant Life insurance moves the cost of your life insurance policy from your pocket to your company expenses & the taxman – saving you money. So if you’ve been paying for your life insurance the ‘normal’ way, it’s worth reviewing if you could switch to a Relevant Life policy.
Similarly to your life insurance cover, it’s a change of circumstances that means you could be due a review of your critical illness insurance…
Have you just started contracting?
If this is the case, we’re sure you’re aware that you no longer receive the benefits you had when you were employed? It’s for this reason that Contractors decide to take out Critical Illness cover. More than that, the statistics show that it is worth giving consideration to. According to MoneySupermarket.com, we are five times more likely to claim on a Critical Illness policy than a Life Insurance policy before the age of 65 – in fact, between the ages of 45-49 years old is when most Critical Illness claims are made.
With this in mind, arrange a conversation with us to establish what your ‘breadline to deadline’ is and consider if critical illness cover makes sense for you. It’s important when you do this to work out how long could you realistically survive (pay for your mortgage, food, bills and lifestyle) if you were unable to earn due to a critical illness?
Has your salary increased?
In this lovely scenario, you’ll need to increase your critical illness cover to reflect a revised loss of earnings if you become critically ill and are no longer receiving an income.
While the list above might seem long, you don’t need to worry. That’s why we are here.
Leave the hassle to us – over a short phone call with you we’ll do a ‘fact find’ to understand your circumstances and, together, decide the best course of action for you.
*Halifax standard variable rate taken from www.mortgagerates.org.uk on 28.06.18
All content is accurate at the time of publication
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