For most people, their mortgage is likely to be the biggest financial commitment they will ever take on. Therefore, it makes sense to protect it with some form of insurance policy. This will give you the peace of mind that you can continue to meet the repayments on your new home, should you find yourself in adverse financial circumstances.
Here are some of the main types of insurance cover to consider.
Life insurance
A life insurance policy will ensure that your mortgage payments continue to be met, if you die before the repayment term is complete. It’s a way to provide peace of mind that your family won’t be forced to sell their home in the event of your death. It’s not mandatory, but if you are the main breadwinner in the household, it’s certainly well worth considering.
Most life insurance policies are ‘decreasing term’, meaning that the amount you are covered for decreases in line with the amount you have paid off. At the point you pass away, your family or dependents will be provided with the exact monthly sum to pay off the rest of the mortgage.
Another form of life insurance policy is ‘level term’, which pays out a predetermined lump sum in the event of your death, regardless of when this occurs. The monthly payments are usually more expensive, but it gives your family more flexibility in how to use the money, as they may have a surplus which can be used to cover other expenses.
Income protection insurance
This type of policy will cover all or part of your mortgage repayments, in the event that you lose your income and are unable to meet the monthly repayments. This could be through an accident or sickness that prevents you from working, or if you are made redundant. Some policies will cover one or the other, or both.
You aren’t legally required to take out mortgage income protection insurance, but it can provide that extra security and peace of mind, especially if you live alone, or you are the sole breadwinner in the household. You can choose from varying levels of protection, which will be linked to the cost of the monthly contributions that you make.
Some employees may already be offered income protection insurance with their benefits package. However, most will offer the minimum requirement of Statutory Sick Pay for 28 weeks, so the income protection policy can either be used to supplement this, or be taken up later, should you not be able to resume work after this period.
Critical Illness cover
This type of policy is designed to pay out a tax-free lump sum, if you should be diagnosed with a critical illness that prevents you from earning. It can be used either to ensure that the monthly mortgage repayments are met, or put towards treatment expenses.
Some pre-existing medical conditions may exclude you from taking out critical illness cover. It’s important to disclose all the information you are asked for in full and to the best of your knowledge, otherwise the policy may be invalidated.
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