Protection – what to consider when you have a mortgage
The more you have in your life, whether it’s people, property, possessions or pets, the more you will want to look after them and keep them safe.
This is where insurance comes in – to protect you and your family should something bad happen. Let’s look at some of the main types of mortgage protection and other insurance products.
How would your family be affected should something happen to you? When someone passes away unexpectedly it has a huge impact. By having a life insurance policy in place you can ease some of the pressure on those you leave behind.
Life cover pays a lump sum to your dependents in the event of your death. This could pay off the mortgage, or significantly reduce the debt. It will relieve any worry about losing the home if you’re not around to bring in an income.
While most mortgage companies will ask you to take out a life insurance policy as part of your contract, there are a few types of life insurance products to consider. These include:
Decreasing term: This policy runs in line with your mortgage, decreasing as your mortgage decreases. This option is usually the most budget-friendly approach.
Level term: A level term policy will pay out the same sum at any time.
Increasing term: With an increasing term policy the payment sum increases over time, so it allows for inflation and the rising cost of living.
You can also buy joint life insurance cover, designed for a couple. This policy pays out if either of you were to pass away.
Critical illness cover
Critical illness cover is designed to pay out a lump sum should you be diagnosed with a critical illness.
Life expectancy is higher than ever, but because we are living longer we are more likely to develop a serious condition. Today, 50% of the population will experience some form of cancer in their lifetime – a statistic that is difficult to ignore.
How would you pay your mortgage if you were not able to work because of cancer, a heart attack or stroke? Other conditions that are usually covered include Multiple Sclerosis, Parkinson’s Disease, brain tumour or kidney failure.
The good news is that medical discoveries mean that you could make a full recovery and eventually be able to go back to work. But in the meantime, will you be able to pay the mortgage and keep your home?
Critical illness insurance will give you that peace of mind. On being diagnosed with a terminal illness or one of a number of serious health conditions, your policy will pay you a set sum. You have complete choice over how to spend the money: it could help with living costs if you’re unable to work, or it can pay for something else – even a dream holiday.
Income protection insurance
Income protection cover works differently to life and critical illness cover. Rather than paying you a one-off lump sum, instead, it provides you with a monthly payment into your bank account.
Income Protection will cover you for any accident or illness where a doctor signs you off work. People frequently claim for bad backs and mental health conditions such as depression.
Although you might receive some payment from your employer, it’s important to understand how much this is and whether it will cover the cost of living for your household.
If you need to rely on Statutory Sick Pay (SSP) as an income because you are too ill to work, you will only receive £95.85 per week. Your employer will pay SSP for up to 28 weeks – and after this time you may not receive anything. This kind of insurance is very important for the Self-Employed – as there is no sick pay at all if you work for yourself.
An income protection policy will pay you a set amount for as long as you are unable to work. There may be an initial waiting period of a few weeks. You can choose the level of cover, to make sure you receive enough to pay your mortgage and bills.
Mortgage Payment Protection Insurance (MPPI)
A similar protection option is mortgage payment protection insurance (MPPI). This is sometimes described as unemployment cover, as you can select whether the policy covers accident, sickness and/or the loss of your job.
With MPPI your insurance premium specifically covers the cost of your mortgage payments if you’re unable to work. It usually pays out for a maximum term – for example 12 months or two years.
Most of us are familiar with home insurance – but bear in mind that you need to protect both the property and your possessions. You will often be asked to take out buildings insurance as part of your mortgage arrangement, but this won’t cover your personal possessions and furnishings.
There are different levels of cover available too, from basic repair and replacement options to full emergency assistance, depending on your preferences.
Let us help you find the right products.
Everyone’s situation is slightly different and there is no single right answer when it comes to insurance products.
Policies often present many different features and benefits to consider but there is often too much information and not enough advice! To make an informed decision it can be very helpful to speak to a professional.
We can tailor-make a solution that fits your needs and your individual requirements. For a free, no-obligation service contact Caroline Bignell at firstname.lastname@example.org