Introduction
As you embark on your homeownership journey, it’s crucial to consider mortgage protection. Life is unpredictable, and having the right safety nets in place ensures peace of mind for you and your loved ones. Mortgage protection is designed to pay your mortgage when you can’t, either due to illness, life-changing injuries, or even in death.
Understanding Mortgage Protection
Mortgage protection encompasses various insurance policies designed to shield you from financial hardship during challenging times. Let’s explore three key types:
1. Life Insurance
- What Is It? Life insurance provides a lump sum payout to your beneficiaries if you pass away during the policy term.
- Why Is It Important?
- Continuity for Your Family: Losing a loved one is emotionally devastating. Life insurance ensures that your family can continue living in the home without financial strain.
- Mortgage Repayment: The payout can cover outstanding mortgage debt, allowing your family to remain in the property.
- Considerations:
- Choose between term life insurance (covers a specific period) or whole-of-life insurance (covers you for life).
- Tailor the coverage amount to match your mortgage balance and family’s needs.
- Potential Cost:
- The cost of life insurance can be as little as £5 for over £100,000 worth of cover. The price of a cup of coffee or a pint.
- Potential costs are age and health related.
2. Income Protection Insurance (IP)
- What Is It? IP insurance replaces part of your income if you’re unable to work due to illness or injury.
- Why Is It Important?
- Financial Stability: Imagine being unable to work for an extended period. IP ensures you can cover essential expenses like mortgage payments, bills, and groceries.
- Multiple Claims: Unlike some policies, IP allows multiple claims during the policy duration.
- Considerations:
- Assess the waiting period (how long before benefits kick in) and benefit period (how long benefits last), also know as the ‘deferred period’.
- Factor in your occupation and health when choosing coverage.
- Potential Cost:
- Costs vary but can start for as little as £10 per month.
- Potential costs are age and health related. The deferred period also impacts the pricing. The longer the deferred period the cheaper the product tends to be.
3. Critical Illness Cover
- What Is It? Critical illness cover pays out a lump sum upon diagnosis of specific life-threatening conditions (e.g., cancer, heart attack, stroke).
- Why Is It Important?
- Financial Relief During Illness: Facing a critical illness is emotionally and financially draining. The payout eases the burden during recovery.
- Focus on Health: With financial worries alleviated, you can concentrate on healing.
- Considerations:
- Review the list of covered illnesses—policies vary.
- Decide whether to combine critical illness cover with life insurance or purchase them separately.
- Potential Costs:
- The average cost of critical illness cover can be around £25.16 per month.
When Should You Act?
Start considering mortgage protection early in your home-buying process. As you finalise your mortgage deal, explore these options. Waiting until a crisis strikes may limit your choices.
Conclusion
At Frank Mortgages, we believe that securing your home isn’t just about interest rates and loan terms—it’s about protecting your family’s future. Reach out to us to discuss your mortgage protection needs. Together, we’ll tailor a strategy that aligns with your unique circumstances.
If you’re looking to take your first step onto the property ladder we have created a 7 step guide for you to read and follow – please click here.
Alternatively, other guides that may relate to you can be found on our website, these include articles about BTL mortgages, information for our self-employed as well as an article for first-time buyers who might be eligible for a 100% mortgage where no deposit is required.
Sources: MoneySavingExpert
