Mortgage & Lifestyle Protection
Type: Mortgage payment protection insurance with level or inflation linked living expenses option
Minimum-maximum ages: 17-65
Maximum benefit: 50% of gross annual income for accident, sickness and unemployment cover subject to £50,000 maximum at start of plan, accident and sickness cover subject to £1.500 maximum for the unemployed, carers, homemakers and those on a career break
Definition of disability: Own occupation, activities of daily living for the unemployed
Benefit payment term: Unlimited for accident and sickness cover, 12 months for each unemployment claim subject to total maximum of 36 months
Deferred period: One, two, three or six months
Minimum premium: £10 a month
Commission: 145% of Lautro rates, enhancements available
LV= mortgage & lifestyle protection plan differs from traditional mortgage payment protection insurance policies by also providing an option for living expenses cover.
Independent Personal Financial Management director Luke Gibbon believes this type of product is long overdue, as it enables a complex arrangement of policies to be reduced to one.
“At present existing mortgage protection plans tend to provide cover for just 12 to 24 months. For comprehensive cover, a further income protection plan would be required to start after the mortgage protection runs out. Extra income could also be required to run alongside the mortgage protection plan,” he says.
Gibbon points out that the plan consists of two components, namely mortgage protection and living expense cover.
“Each component can run for different periods. The thinking behind this is that the mortgage could be repaid before retirement.
“The mortgage element is a fixed benefit, but does not have to equate to the clients actual mortgage. The living expense can be linked too the retail prices index up to 12 per cent a year,” says Gibbon.
He notes that the premiums are guaranteed but the living expense premium will rise in line with RPI if this is chosen. “The maximum combined benefit is 50 per cent of salary. There are no restriction on claims for sickness and accident but the maximum claim for unemployment is limited to 36 months with no more than 12 months on any one claim,” he says.
There are several aspects Gibbon does not like about this product. “The mortgage element is a fixed benefit and it is unrealistic to expect the actual mortgage cost to remain the same throughout the term. It could be argued that existing mortgage protection plans do not offer increases but these pay for a maximum of two years.”
He would have preferred the option to attach the mortgage payment to an index that measured interest rates. He concedes that his proposal may not be ideal, but says at least it should keep the benefit close to the mortgage costs.
“The waiting, or deferred period, cannot be different for the mortgage and living expense element. This option would have been useful if a client received some sick pay from the company or felt that they could fund additional costs from savings for a period, but needed to cover the mortgage costs quickly,” says Gibbon.
One of the aspects Gibbon likes about LV= as a company is that it has had few or no exclusions under its policies. “There are again no exclusions for the sickness and accident elements but for unemployment it has included war or riot, radiation and nuclear contamination. I think it is extremely unlikely these events would result in unemployment without sickness or injury and I am disappointed they have been included,” he says.
Scanning the market for potential competitors Gibbon says: “A mix of mortgage protection and income replacement policies is an obvious choice but the drawback is the complexity. However, a combination of policies could provide greater flexibility.”
Summing up Gibbon says: “Overall, I like the idea but the fixed benefit and restriction on waiting periods could result in the plan not being suitable for clients.
“The plan has been designed, I believe, primarily for mortgage intermediaries and I think it will need more flexibility to be successful in the general IFA market. I understand that the plan may be modified in the future – let’s hope so. It is a great idea but has just missed the mark.”
Suitability to market: Good
Competitiveness of premiums: Average
Adviser remuneration: Average