What cover will you need?
Buying a home is a big financial commitment – and some protection products can stop you from worrying about the what-ifs. Let’s take a look at mortgage protection.
What does the term protection mean?
In the mortgage sector, protection generally means insurance policies that will help you cope with a life-changing scenario.
As an example, if you were to pass away or to suffer a critical illness, a protection product might pay off your mortgage or provide an income if you’re unable to work.
Why do people with a mortgage need life insurance?
A life insurance policy will provide a lump sum for your surviving partner, children, or another family member if you were to die within the policy term. It could pay the mortgage off so that the partner or other family members don’t need to worry about repaying the loan.
Many mortgage lenders require you to have life insurance as part of the contract.
What if I have pre-existing medical conditions?
Many insurers will cover you even with pre-existing medical conditions, depending on the details. If there is quite a serious pre-existing condition the insurer might add an exclusion, which means death caused by that health concern would not be covered. Or, you might pay a higher premium to be covered for that condition.
Do I need critical illness cover?
A critical illness policy will give you a financial safety net. It is designed to pay you a lump sum if you’re diagnosed with a life-threatening illness such as cancer.
People often insure themselves to provide a year’s salary on the diagnosis of a critical illness, which frees you up from money worries while you undergo treatment
Children can also be covered under a critical illness policy, which gives parents the flexibility to arrange special childcare or take a career break.
What is income protection?
Income protection differs from life and critical illness cover because it doesn’t pay a lump sum. With an income protection policy, if you claim you receive a monthly income.
This type of policy covers you if you are unable to work due to an accident, sickness, or injury. It covers your mortgage and monthly bills so that you can recover without worrying about your income.
Who would benefit the most from income protection?
Income protection is very popular among self-employed people, as they don’t receive sick pay if they’re unable to work. But even employed individuals may only receive pay for a limited number of weeks. Income protection can be deferred, to kick in once sick pay ends.
What is family income benefit?
Family income benefit provides a replacement income for a certain time period, should you pass away unexpectedly. The aim is to help your family to maintain their lifestyle and ensure your partner and children have the same opportunities as if you were still around.
What about planning for inheritance?
Wills and estate planning are a little beyond a Mortgage Broker’s remit – but we do encourage our clients to make a will and can introduce them to estate planners.
When you take out certain protection policies you can put the funds into ‘trust’, which means it is tax free. This is definitely something to look at when buying protection.
How much should someone spend on protection?
As mortgage advisers, we encourage clients to budget 10 to 15% of their mortgage payment for a protection budget. This way, if you’ve got multiple priorities such as life and critical illness cover or life, critical illness, and income protection, you can cover each of these within your 10-15%.
The main thing is to give yourself a financial safety net that isn’t a burden.
How can I be sure I’ve got the right level of protection?
Even if you have cover in place, it never hurts to have a free, no obligation review of your policies to make sure they’re still fit for purpose. We are always happy to take a look at a client’s protection, to determine any gaps, or to recommend better suited policies available to date.
Contact us with any protection queries – we’ll be happy to help.