Archive for September, 2008

Is Equity Release The Best Way To Fund Your Retirement?

September 29th, 2008

Britain is getting older. Retirement ages are rising and so is life expectancy. Against this background, it’s no surprise that there are more mortgage options for pensioners than ever before, too.


As well as conventional mortgages – where you pay back money – there are also products such as ‘lifetime mortgages’, which allow pensioners to receive payments based on the value of their home and don’t have to be repaid until the home is sold.


This fast-growing type area of finance is known as equity release – borrowing against the value of your own home. In this article I’ll explain what the options are and highlight some alternative approaches you might wish to consider.
What’s Equity Release?


There are two main types of equity release scheme available in the UK:


         Lifetime mortgages

         Home reversion
Lifetime Mortgages

Lifetime mortgages are by far the most popular (and flexible) and allow you to borrow money against the equity in your home. This can be paid to you in a lump sum, as a regular income, or on demand over a number of years.


The money you have borrowed accrues interest continually but you don’t have to repay anything until the property is sold.
Home Reversion

Home reversion schemes are a little different. Instead of borrowing money, you sell a fixed share of your home to the home reversion scheme provider. You then continue living in it and remain responsible for its upkeep.


When the time comes to sell the home, the home reversion company is paid their fixed share of the sale price – whatever that might be. Although this approach to equity release mortgages can sound attractive, it isn’t as popular as lifetime mortgages. One reason for this is poor value; to protect their eventual profit, the home reversion company will purchase their share of your home at much less than market price.
Alternatives to Equity Release


Although equity release is increasingly popular, it is a drastic step and can be expensive.


For this reasons, most reputable financial advisers will make sure there is nothing else you can do to improve your finances before recommending that you enter into an equity release scheme.


Some of the other measures you might want to consider first are:


         Ensure you are claiming all of the state benefits you are entitled to

         Consider downsizing your home or moving to a cheaper area – this can lower your bills and leave you with some cash left over to improve your lifestyle

         Check whether you can get a council grant for any major maintenance work or improvements to your home

         Do you have savings or investments you could use to increase your income – a financial adviser will be able to help you work out the possibilities

         Are you receiving all of the pensions you are entitled to? Do you have any lost pensions from old jobs that you could track down?


If you’re worried about money in your retirement, your first step should be to assess your current position. The FSA (the financial services regulator) runs an excellent website containing interactive guides to managing your finances. These are designed to be simple to use and will help you understand exactly where you stand at the moment.

Tags: interactive guides to managing your finances | interactive guides to managing your finances | mortgage options for pensioners | mortgage options for pensioners | equity release mortgages | equity release mortgages

Insurance Customers are the Big Winners

September 22nd, 2008

Competition has increased in the online life-insurance industry, and the big winners are consumers.  People who get life insurance can firstly use the web to collect all the necessary information to make decisions about their insurance, quickly and easily.The growth of online insurance advice has raised concerns with the authorities who regulate the industry. 

The consumer watchdog for the life-insurance industry, the Financial Services Authority, said insurance-comparison websites have helped consumers to find insurance information before making decisions.  But consumers still need to investigate and find the right websites for help.The FSA stated in a report: "Consumers should be provided with appropriate information about a policy in good time and in a comprehensible format, so that they can make an informed decision about the purchase of insurance." 

Not all UK comparison websites were included in FSA’s review; however one of its outcomes was to identify the features a customer requires to make an informed decision.  The FSA is now addressing issues with individual businesses.Reviewing individual businesses could be difficult for the FSA with hundred of businesses providing insurance and many times that number operating as online "broker" selling insurance and leads.

In 2006, the Association of British Insurers reported that 262 insurers sold long-term insurance.  Many of these solely dealt with long-term insurance, while some dealt with both long-term and general insurance.  The ABI recorded that independent financial advisors were the main vehicle of long-term insurance sales.Since the ABI report, growth of the number of comparison websites has exploded. 

These services have been used to sell general insurance for a long time.  And as they continue to grow and prosper, providers are broadening their reach to other products such as long-term insurance.  

The FSA noted the rapid growth of this product in its latest review of insurance- comparison websites.A life-insurance comparison website works like a shop front.  It collects your information and shows available policies but the ultimate decision and contract is made by a third party who is sold the lead. 

Just like a shop front they offer some products but not all of the available brands.  In fact some of the bigger insurers are not marketed through insurance comparison websites at all.So what is the process? Most comparison websites make a series of assumptions about the user before delivering a quote.  These assumptions many include age, occupation and hobby (all of these qualities have an influence on a policy).  

Many of the life-insurance sites do not provide real-time quotes.  Rather comparison websites send the information to an insurance company which contacts you about life-insurance policies, or they have their own brokers who contact you for more information.Very few of the sites that promote themselves as finding cheap general insurance offer to find clients cheap life insurance

The FSA noted that some sites struggled to service customers:    "Providing the ability to compare products is at the heart of what insurance comparison sites are trying to achieve. However, our review highlights that sites are achieving this with varying levels of success.""Sites comparing a limited number of features, and in particular where comparison is only on the basis of price, should explain to consumers in a clear and timely way that the products being compared may have different features, and that features, other than price, should be taken into account before purchasing a policy."There is no doubt that comparison websites benefit the consumer, by offering a platform where customers can compare the life-insurance policies of various companies. 

The advantage of this system is that customers do not need to invest a lot of time into information gathering and they are more likely to check a few offers before selecting one.Customers have easy access to other information on the comparison websites and also from authorities such as the FSA if they have any enquiries about a life-insurance quote.  These services help customers to bring more demands to the table when negotiating a policy.   The main disadvantage is that not all comparison sites have every product available in the market. 

Long-term insurance can be a complicated process which means a company may make very general assumptions about customers, or they will not be able to receive a quote instantly.  Instead customers receive a call or email from an insurance "broker" to discuss policies.Regardless of the method of quotes, by offering comparison services and regulatory information in the one place, the customer has the advantage in negotiating any insurance policy.

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