1 Protection Friends Life Protection Account Key features of Mortgage Income Protection Cover Why is this document important? The Financial Services Authority is the independent financial services regulator. It requires us, Friends Life Company Ltd, to give you this important information to help you to decide whether the Friends Life Protection Account s Mortgage Income Protection Cover is right for you. You must read this document carefully so that you understand what you are buying, and then keep it safe for future reference. The purpose of this document is to help you make an informed decision. This document introduces you to the key features, benefits and risks of Mortgage Income Protection Cover. Where relevant information is contained in other documents these will be signposted at the appropriate point. Full terms and conditions can be found in your Account pack. This will be sent to you when your cover starts. If you would like a sample Account pack, please ask your financial adviser. You need to be comfortable that you understand the benefits and risks before deciding to take cover out. You should also speak to a financial adviser before making any decisions about this cover. What other documents should I read? It s important you read this document with: Your Quotation summary The Key features of the Friends Life Protection Account The Key features of Payment Protection Cover You should contact your financial adviser if you need copies of these or any of the other documents mentioned in this document.
2 Mortgage Income Protection Cover Its aims, your commitment and risk factors What is Mortgage Income Protection Cover? Mortgage Income Protection Cover is insurance that pays out a regular monthly benefit to help cover regular mortgage payments. Benefits are paid if the person covered suffers a loss of income and is unable to work for an extended period of time due to incapacity caused by an illness or injury. We measure the incapacity according to the definition of incapacity for the person covered, shown in their Account pack. The person covered must prove they are unable to perform the essential duties of their occupation or a number of the specified activities listed within their definition, to a minimal level, without the help of someone else. They must not be working in any other occupation. In all cases, their inability to perform essential duties or an activity must be the result of an illness or injury. Should I consider taking out Mortgage Income Protection Cover? You should consider taking out Mortgage Income Protection Cover if you: want cover for five years or more, providing that cover ends on or before your 65th birthday, and need to protect your mortgage payments, are employed, self-employed or a house person*, live in the UK, and are aged between 18 and 59 when cover starts. * A house person is a person covered who works for less than 16 hours a week or doesn t earn any money. Its aims To pay out a regular monthly amount to help cover your regular mortgage payments if before the cover end date the person covered: meets the definition of incapacity for longer than the deferred period, caused by illness or injury. The deferred period is the continuous period between the person covered becoming unable to work due to incapacity caused by an illness or injury and the date we would start paying a claim (see How does Mortgage Income Protection Cover work? on page 4). Your commitment You must: provide full and true answers to the best of your knowledge when applying. If you do not the insurance may not protect you in the event of a claim, tell us about any changes to health, family history, occupation, travel or pursuits that occur between completing the application and your cover start date. Please contact your financial adviser or phone us on We are open 8am to 6pm, Monday to Friday, make regular payments to us when they are due, give full and true answers in the event of a claim, make sure you are aware of and understand any exclusions and restrictions that may apply. These can be found in your Account pack, arrange to cancel your cover if you repay your mortgage in full before your cover end date, inform us of a claim within your notification period (see When do I need to tell Friends Life about a claim? on page 5), give us information regularly about your illness or injury during the period of your claim. 2
3 Risks Acceptance of your application is not automatic. When you apply we assess the risk of providing you with the cover you have applied for based on your health, family history, occupation, travel and pursuits. This is known as underwriting. If we are unable to offer you cover on our standard terms, we will contact you to explain the terms we can offer or the reasons why we cannot cover you. If you fail to meet the commitments described in Your commitment it may result in a claim not being paid. If you ask us to increase the amount or extend the length of your cover after it starts, we may need up to date underwriting information. If this information has changed since you applied and increases our risk of providing cover to you we may: not allow the change to happen, limit the change, increase the payment to us, or add an exclusion. The cover may be more or less than you need if you do not review it regularly to keep it in line with your monthly mortgage payments. Your monthly mortgage payments may vary from time to time due to changing interest rates. It is important that you do not take out too much cover because there are maximums that apply to the amounts we can pay if you claim. If you have taken out and pay for more cover than you need you will not receive a refund of any payments you have made to us. Please see How much Mortgage Income Protection Cover do I need? on page 4 for further details. A claim may end if you move outside of a range of countries (that we call permitted countries) that are shown on page 6. Claims paid under Mortgage Income Protection Cover may affect your entitlement to some means-tested State benefits but not your entitlement to benefits from the State for incapacity. The rules relating to claims for State benefits may change. Any benefit we pay could affect your claims for other income protection insurance you may have or that your employer may provide for you. Over time, the effect of inflation could reduce the value of your amount of cover. Put simply, what your amount of cover could pay for in the future may be less than it could pay for today. If you choose cover on a reviewable basis, you may need to increase your payments to us in the future. See page 8 for further details. Regular reviews with an authorised and regulated financial adviser can help you to ensure that your cover continues to meet your needs. 3
4 Questions and answers Mortgage Income Protection Cover How does Mortgage Income Protection Cover work? Mortgage Income Protection Cover pays out a regular monthly benefit to help cover your regular mortgage payments. Benefits are paid if during the length of your cover, you become unable to work for longer than your chosen deferred period due to incapacity caused by an illness or injury. The deferred period is the continuous amount of time that you must wait between meeting the definition of incapacity and the start of your regular monthly benefit. You choose the amount of time you wish to wait, the options available are: 4 weeks 8 weeks 13 weeks 26 weeks 52 weeks 104 weeks The longer your deferred period, the less you will pay for your cover. The deferred period does not apply if you need to claim again for the same cause within 12 months of returning to work, subject to terms and conditions. Restrictions may apply to the length of deferred period available for some occupations. The cover will pay out when you meet our definition of incapacity and your selected deferred period has ended and will continue to be paid for as long as the claim is valid. Cover is provided until the end of the cover period regardless of how many claims are made. You should continue to make your payments to us until we accept your claim. It is possible to change the deferred period once cover has started, subject to the terms and conditions in force at the time of the change. If you want to reduce the deferred period, we will need to collect new underwriting information. If you and your partner require protection then you will each need a separate cover. How much Mortgage Income Protection Cover do I need? Your financial adviser can help you work out the right amount of cover to take out and regular reviews with them will ensure that your cover continues to meet your needs. It is important that you do not take out too much cover because there are maximums that apply to the amounts we can pay if you claim. We will not pay more than the lower of: 150% of your contractual monthly mortgage payment, 30% of your monthly earnings, or 1,500 per month. If you were not in full-time employment immediately before your claim, we will not pay more than the lower of: 100% of your contractual mortgage payment, or 1,250 per month. The maximum payment will be reduced by: any income, payment or waived premium from any other insurance policy which pays out while you are unable to work, any pension income received since the start of your incapacity, and any ongoing income you receive from your employer or business. Your amount of cover will normally be based on the amount of your mortgage but you may also wish to include associated expenses such as utility bills and council tax. Any dividends you receive as both a shareholder and an active employee of a private limited company may also be taken into consideration as earnings. If you take out and pay for more cover than you need, or your mortgage payments fall you may not receive the full amount of cover that you have paid for. If there is a shortfall we will not refund any payments you have made to us. 4
5 What is meant by earnings? If you are employed, we will class the following as your earnings: your pre-tax earnings for PAYE assessment purposes, shown on your HM Revenue and Customs P60 form, and any benefits in kind you would lose averaged over the previous three years. If your normal income from your occupation includes company dividends, these may be included as part of your normal earnings if: the dividends stop because of illness or disability you are an active employee of the company. If you are self-employed, we will class the following as your earnings: your average taxable income after the deduction of business expenditure allowed by HM Revenue and Customs over the previous three complete financial years (i.e. net profit). If the business has been running for less than three complete financial years, we will work out the average taxable income during the period the business has been running for. Any income received from savings or investments are not taken into account regardless of whether you are employed or self-employed. Do I need to tell you if I change my occupation? You only need to tell us if your occupation changes between completing your application form and the start of your cover. After your cover starts, you do not need to tell us if you change your occupation. However, if you move to a less hazardous occupation you may wish to tell us as this could result in your payments to us being reduced. Some additional conditions apply if you are not working and need to make a claim. These are explained in detail in your Account pack. When do I need to tell Friends Life about a claim? If you become unable to work you need to tell us within the following notification periods: two weeks if your deferred period is four weeks, four weeks if your deferred period is eight weeks, or eight weeks for any other deferred period. If you do not tell us within these time periods we may: extend the deferred period by the length of the delay, or refuse to pay your claim. How will you assess my claim? We will ask for evidence to assess your claim against the definition of incapacity shown in your Account pack. We will not pay any benefits until we have received the evidence we have requested. Your claim will be paid providing you: meet the definition of incapacity, suffer a loss of earnings; and are not doing any other work. Is there a limit to the number of times I can claim? No. You may claim for any number of separate episodes of incapacity you experience during the length of your cover. Providing you meet all of the terms and conditions the regular monthly benefit will be paid. 5
6 Questions and answers Mortgage Income Protection Cover How is benefit paid and when does it end? Your claim will be paid monthly in arrears until the first of the following happens: your cover ends, you no longer meet our definition of incapacity, you become resident outside any of the permitted countries for longer than 12 months, you no longer suffer loss of income, you retire, your mortgage is paid off, or you die. Permitted countries The permitted countries are Andorra, Australia, Austria, Belgium, Bulgaria, Canada, Channel Islands, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hong Kong, Hungary, Iceland, Isle of Man, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, The Netherlands, New Zealand, Norway, Poland, Portugal, Republic of Ireland, Romania, San Marino, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States of America. Proportionate Cover Proportionate Cover pays a regular monthly income if you have to change your occupation immediately after making a valid mortgage income protection claim and find that your earnings are reduced as a direct result of any residual incapacity. Payment Protection Cover Payment Protection Cover is automatically included in your account when you take out Mortgage Income Protection Cover. Payment Protection Cover will make payments on your behalf if you unable to work due to illness or injury. You should continue to pay for all the covers in your account and your Account Fee until we accept your claim. Please read the Key features of Payment Protection Cover for a detailed explanation of what Payment Protection Cover is and how it works. Does Mortgage Income Protection Cover include anything else? Yes, Mortgage Income Protection Cover also includes: Hospitalisation Cover Hospitalisation Cover pays a regular income for up to 13 weeks if you are confined to hospital for six or more consecutive nights during your deferred period. The amount paid is the daily equivalent of your cover up to a maximum of 200 per night. Payments will stop when the deferred period ends. Rehabilitation Cover Rehabilitation Cover pays a regular monthly income for up to 12 months if you return to your occupation immediately after making a valid mortgage income protection claim and your earnings are reduced as a direct result of any residual incapacity. 6
7 Types of cover When won t Mortgage Income Protection Cover pay out? We will not pay a claim if the incapacity is directly or indirectly caused by: unreasonable failure to follow medical advice, an excluded cause shown on your cover schedule, alcohol or solvent abuse, the taking of drugs, except under the direction of a registered medical practitioner (this only applies to certain illnesses), intentional self-inflicted injury, normal pregnancy of the person covered, except where they are experiencing pregnancy complications, infection by any Human Immunodeficiency Virus (HIV), Acquired Immune Deficiency Syndrome (AIDS) or related complex unless covered by our eligible HIV claims definition, or if: medical or other evidence required by us is incomplete or inaccurate, you do not have a mortgage, you have been resident outside of any of the permitted countries for longer than 12 months, you do not provide full and true answers to the best of your knowledge when you apply for cover or when you claim, or you don t tell us about changes to health, family history, occupation, travel or pursuits that occurred between completing the application and the cover start date. What is the type of cover and how does it work? When you take out Mortgage Income Protection Cover there is one type of cover. Level cover the amount that is payable in the event of a claim stays the same for the length of your cover. With level cover, your payments stay the same, unless you change your Mortgage Income Protection Cover or if your payment basis is Reviewable. This diagram illustrates level cover.* Amount of monthly benefit ( ) Term (years) * This diagram is for illustration purposes only and is based on an initial 2,500 of cover over a 25 year term. The type of cover your financial adviser has recommended for you is shown on your Quotation summary. 7
8 Questions and answers Mortgage Income Protection Cover Payment and tax What is the payment basis for Mortgage Income Protection Cover? The payment bases available with Mortgage Income Protection Cover are Guaranteed and Reviewable. Guaranteed with Guaranteed payments, we won t apply any increases or decreases to your payments to us if the cost of providing your account turns out to be more or less than we first estimated, unless you make any changes or select increasing cover. Reviewable with Reviewable payments, we may offer you a more affordable payment when cover starts. We calculate your payments to us using assumptions that cover the whole period of cover. These assumptions are the future number of claims, their timing and the cost of reinsurance. We will increase or reduce your payment if our view of these assumptions at the time of review has changed since outset or the last review. Your payments to us are reviewed on the fifth anniversary after your cover start date and every fifth anniversary after that. If our costs to provide the cover are higher than first estimated your payment may go up and if they are lower your payment may go down. However, if the change is within 10% either way your existing payment and cover will stay the same until the next review date. Please note there is no limit to the amount by which your payment could increase or reduce. We will tell you before we change your payment. You can choose not to accept an increase in your payment by proportionally reducing your amount of cover instead. Payments to us may change during the length of cover even if you make no changes or do not select increasing cover. Payments after review could be higher than guaranteed payments would have been. Terms and conditions apply. If you are unsure whether guaranteed or reviewable are suitable for you, please speak to your financial adviser. You can find full details of your payment basis on your Quotation summary and in your Account pack. How does tax affect my Mortgage Income Protection Cover? The benefit from Mortgage Income Protection Cover is paid free of income tax and National Insurance. Current UK tax law and HM Revenue and Customs practice means you don t get tax relief on the amount you pay to us. Tax rules and rates can change and their impact depends on your individual circumstances. The information we provide is based on our interpretation of current HM Revenue and Customs practice. Please ask your financial adviser if you would like a copy of this document in large text, Braille or audio. PRKFMIP 09/09/11 (32984) Friends Life, PO Box 1810, Bristol BS99 5SN. Telephone: Friends Life Company Ltd, the provider of this plan, is authorised and regulated by the Financial Services Authority, register No (www.fsa.gov.uk/register/home.do). A company limited by shares, registered in England No , registered office: Pixham End, Dorking, Surrey, RH4 1QA. As part of our commitment to quality service, telephone calls may be recorded.