Have you ever bought a product and been offered an extended warranty? Most of us have at some point in our lives, so let’s have a look at extended warranties are and if they’re right for you…
What is Extended Warranty?
Extended warranties are a type of insurance that cover the cost of repairs to goods after the manufacturer’s or seller’s guarantee has ran out.
You can take out extended warranties on a whole host of items, such as fridges, washing machines, televisions, cars, and many more.
Standard Warranty
The Consumer Rights Act 2015 states that goods should be of a satisfactory quality and last a reasonable length of time under normal wear and tear. This means you already have a level of protection when making purchases.
Manufacturers often guarantee their goods for up to 12 months, meaning that if the product you bought breaks in this amount of time from ordinary use (i.e, you haven’t chucked it out of the window or set it on fire, etc), you can take it back to the shop and get a refund.
Some retailers may add their own additional period of guarantee included in the price of the product, on top of the period covered by the manufacturer. For example, the manufacturer may have guaranteed the product for 12 months, and the retailer for an additional five years, bringing your total period of guarantee up to six years.
What Protections do I Have Without Extended Warranty?
Aside from your protections under the Consumer Rights Act and standard warranty, you may have additional protection when purchasing goods.
For example, if you pay for goods valued between £100 and £30,000 on a credit card, the credit card company must cover you if:
The goods are faulty
The goods are not as described or advertised
The goods are not provided to you when you’ve paid for them
If you have contents insurance, you should check what kind of protections you have under your policy, as the item may be covered by that insurance.
There are also alternatives like multiple item insurance, which you may take out if you wish to cover multiple gadgets.
Check the Details
If you do decide to take out an extended warranty, you should always check all of the details thoroughly and carefully.
Sometimes, retailers will sell extended warranties for things like electric goods which include time limits for repairs, such as waiting six weeks to have your washing machine fixed.
You should also check what kind of repairs the extended warranty would cover. For example, with car extended warranties, several parts are usually not covered, such as damage to windscreens, tyres and bodywork. These types of extended warranties also don’t cover components that are worn out from wear and tear.
It’s also a good idea to shop around to find the best possible deal if you want to take out an extended warranty.
Misselling
Any business selling you an extended warranty must act openly and honestly, ensuring that they do not lie to you or mislead you.
According to the Inclusion Foundation, around 1.3 million UK adults currently face financial exclusion, with 1 in 4 experiencing it at least once in their life.
What is Financial Inclusion?
Financial inclusion is when individuals have equal access and opportunity to financial products and services that meet their needs, regardless of their own background or income.
Therefore, working to create financial inclusion is an essential way in which we can work to create equality.
Financial Education
One vital step in creating financial inclusion is through financial education, as individuals need the skills and knowledge necessary to use financial products and services.
“In addition to building individuals’ skills and confidence, the government is working with partners to make financial communications easier to understand. HM Treasury have been working closely with Plain Numbers, an organisation that seeks to help regulated firms to better support their customers in understanding important communications.”
Whilst this is certainly positive progress, it is notable that they don’t actually say how they are building these skills and confidence. Perhaps we should be attempting to teach financial literacy at an adequate level throughout the education system so that children grow up to understand these financial products and services.
However, as stated by the FCA, “education alone is not enough. Sometimes, markets do not work well to produce good outcomes for consumers.”
Albeit a very important one, financial education is just one component in creating financial inclusion.
As noted by the FCA, we tend to need a current or checking account to be paid and to pay bills, yet by 2020, 1.2 million UK adults still had no current or e-money account.
They also found that many UK households were struggling to access credit, or struggling to access it at reasonable prices.
Many of those on lower incomes are unable to access financial advice, which can be an important tool for understanding, and dealing with, things like pensions, savings and investments.
They also found that 1 in 10 UK adults did not have access to an insurance product and that those in low-income households were less likely to be insured and more likely to face higher premiums if they did have insurance.
All of these things, combined with their finding that 1 in 5 UK adults have low financial capability, perfectly sum up the issues of financial exclusion.
Financial Inclusion Helps Economic Growth
According to a study conducted by Azimi, financial inclusion helps create inclusive growth. He found that whilst financial inclusion had more of a positive impact on economic growth for low-income countries, it still increased the economic growth of middle-income, upper-income, high-income, OECD and non-OECD countries.
From a social perspective, financial inclusion is vital if we want to work towards achieving equality. However, it also has positive economic effects as it helps to stimulate the economy and trigger growth.
by Red Star Wealth
For many of us, our mortgage is our biggest monthly expense. Therefore, the question of whether we could still afford to meet our mortgage repayments if we were out of work is an important one… and this is where mortgage payment protection insurance comes into play.
What is Mortgage Payment Protection Insurance (MPPI)?
MPPI covers your monthly mortgage payments if you’re made redundant or are unable to work due to serious illness or injury. There are three main types of policy cover:
Unemployment
Accident and sickness
Combined
MPPI can help prevent you from defaulting on your mortgage and risking repossession of your home if you’re left without your ordinary income to make mortgage payments.
How it Works
You begin receiving payments after you’ve been out of work for a specified waiting period, which is usually set between 30 and 60 days but can reach up to 180 days. Therefore, it is still always important to consider having an emergency fund, as you still need to cover costs during the waiting period.
There is usually an exclusion period, which is the time elapsing between the start of your policy and the time you are actually eligible to make a claim on the insurance. This exclusion period is usually set between 30 and 180 days.
You will then receive set monthly payments, usually for up to a maximum of 2 years.
Depending on your MPPI provider, you may be able to get a policy where your bills are also covered, in which case you will receive 125% of your mortgage costs.
Your job may affect the amount you have to pay for your MPPI policy, because most insurers categorise jobs according to different risk categories. The higher risk of injury, illness or redundancy you are seen to be at, the higher your premium will be.
Other Insurances to Consider
You may wish to consider a decreasing life insurance policy, which covers the cost of your mortgage payments for your dependents when you die. This is by no means an alternative to MPPI, as cover only starts in the event of your death. However, it may be something you want to consider in addition to MPPI, so that you dependents are financially protected.
As an alternative to MPPI, you may choose to take out income protection insurance. This covers a portion of your salary, making it more comprehensive than MPPI, as the payments you receive can be used for anything, including the mortgage payments themselves. Additionally, income protection insurance often pays you instalments for longer than the MPPI 2-year limit.
Critical illness cover is an alternative worth considering if you were thinking of taking out an accident and sickness MPPI. Critical illness cover pays you a lump sum if you are diagnosed with a serious illness which makes you unable to work, but it does not provide you with a regular income through instalments.
Check whether your employment contract includes an arrangement for the company to continue to pay you your salary, or a portion of it, for a set period if you are off work due to illness. Some employers may even offer income protection insurance as an employee benefit.
Whether you get MPPI is your choice, but as with any financial decision, it’s a good idea to look at all of your options.
by Red Star Wealth
Around 21% of England’s adult population regularly drinks at levels which increases their risk of ill health, but did you know that this can affect your ability to take out insurance?
Why Do Underwriters Ask About Alcohol?
When taking out insurance, applicants will go through a risk assessment process to help determine their eligibility to take out a policy, and the cost of their premium if they are accepted. This process is referred to as underwriting.
Many conditions can be worsened by a high alcohol intake, meaning that underwriters need to know how much alcohol an applicant drinks; they need to account for its possible effects on their life expectancy, level of health, or level of disability.
Insurance is always based on risk as the more risky you are seen to be, the more likely the insurer is to have to pay out. If anything indicates an increase in risk to your health, it will be factored into your ability to take out insurance. This includes:
Whether you’re a smoker
Your alcohol consumption
Your weight
Any mental health conditions
Certain medical conditions
Research conducted by the UK government shows that alcohol misuse is actually the biggest killer of working age adults in England, meaning it’s overtaken 10 of the most dangerous forms of cancer. Given this, it is no surprise that underwriters consider alcohol misuse a significant risk factor in insurance applications.
Alcohol Screening Tests
When assessing applicants’ alcohol consumption, Zurich asks:
How often you have an alcoholic drink
How many drinks you consumer on a typical day when you’re drinking
How frequently you have more than 8 units (if you’re a male) or 6 units (if you’re a female)
Whether you’ve been informed that you have liver damage
Whether drink driving has caused you to be banned from driving
Whether you have attended an alcohol support group
Most insurance companies will follow a similar pattern of questions, to determine the risk level of an applicant’s alcohol intake.
The exact level of alcohol consumption that causes your application to be declined differs from insurer to insurer.
“our ratings typically start when the total number of units is more than 30 per week […] Once someone has a total unit equivalent of more than 50 per week (the equivalent of three or four drinks per day) chances are they are doing quite a lot of damage to their health and we would decline to offer terms”
“If you drink 30-40 standard drinks per week, your application will need to go through extra underwriting and you’ll probably need to provide medical information from your GP, but you might still be able to take out cover. If you currently drink 40+ standard drinks per week, it’s likely your application will be declined”
These quotes offer insight to the general kind of level of alcohol intake which starts to present issues when taking out insurance.
“If there is a history of alcohol dependence we may offer terms, but only after a period of complete abstinence.”
This is typical among most insurance companies.
It’s much easier to take out life insurance if you are no longer misusing alcohol but a period of sobriety is usually required by insurers before they are willing to offer you a policy. Reassured puts this range at 1-5 years, depending on who the insurer is.
Overall, misusing alcohol can have harmful effects on your health, relationships, finances, work, and also on your ability to take out insurance.
by Red Star Wealth
Relevant Life Insurance is a type of life insurance policy tailored towards Directors of Limited Companies who wish to cover themselves or an employee. So, let’s have a look at how it works and the tax benefits that come with it.
Who is Relevant Life Insurance For?
Relevant Life Insurance is an insurance policy for Directors of Limited Companies who want to provide life insurance for an employee and don’t have enough employees to qualify for a group policy.
Relevant Life Insurance is a single-life policy; it covers one employee per policy. For example, you, as the Company Director, could choose to cover yourself through this insurance and pay for it through the company.
Just like with traditional life insurance policies, the price of premiums will depend on the level of cover and the age, health and lifestyle of the employee in question.
If the insured employee dies whilst employed by the company, a cash lump sum will be paid out. You are usually allowed to cover up to 30 times your annual renumeration, but it depends on your age and on your policy. Many policies will also pay-out if the insured person is diagnosed with a terminal illness with less than 12 months to live.
Relevant Life Insurance policies can be taken out by limited companies, charities and partnerships but sole traders are currently unable to access this type of policy.
Relevant Life Insurance vs Group Life Insurance
Relevant Life Insurance essentially acts as a death in service benefit for smaller businesses instead of taking out a group life scheme.
It’s best suited to companies which are too small to consider these group protection schemes or who only want to provide cover to one employee, such as to the Director. Group schemes often work out cheaper for larger groups so if your company is smaller, you may not qualify for this or it may work out too expensive.
Tax Efficiency: Corporation Tax, Income Tax and National Insurance
As Director of a Limited Company, you will not pay for a Relevant Life Insurance policy out of your own pocket. Instead, it is paid for by the company and so is classed as a tax-deductible business expense. Therefore, it is subtracted from company profits, in turn reducing your corporation tax liability.
Relevant Life Insurance is not classed as a P11D benefit in kind, meaning that Directors don’t have to pay extra income tax or make national insurance contributions on the value of the premiums. Premiums therefore qualify for income tax relief, national insurance relief and corporation tax relief. According to Legal and General, this means you could see your premiums reduced by up to 49% of a typical life insurance policy as a higher rate taxpayer, or up to 40% as a basic rate taxpayer.
No Impact to the Pensions Lifetime Limit
If you build up pension savings more than the lifetime allowance (currently set at £1,073,100*) you incur a tax charge.
Unlike with group schemes, Relevant Life Insurance does not fall under pensions legislation so it does not count towards the pension lifetime allowance. Therefore, this type of policy may be helpful for high earning directors or other employees who have reached, or are likely to reach, their lifetime allowance.
In contrast, lump sum payments under a group policy do contribute to the lifetime allowance and payments to the estate exceeding this limit would face tax charges of 55%.
Avoiding Inheritance Tax
If taking out a Relevant Life Insurance policy, you should establish a specialist trust to pay the benefit into.
This helps to avoid potential tax issues with the claim as the pay-out will not enter the company’s or the deceased’s estate, keeping it free from inheritance tax and avoiding probate delays.
*This figure is expected to be increased to £1.8m in the budget on March 15, 2023
If you have any questions regarding Relevant Life Insurance, or would like a quotation, please contact Red Star Wealth’s Managing Director Kristen Cunliffe via email kristen@redstarwealth.co.uk and she will be happy to help
