Would you still be able to pay your mortgage if you were unable to work? For many people, the answer is no. This is why finding the right financial protection for your mortgage is essential to protect your family and your home, whatever may happen.
Financial protection is the best way to prepare for an income shock. An income shock is when you lose your main source of household income without warning – this could be in the event of illness, injury, redundancy, long-term disability or death.
There are three main options for protecting yourself: you can take out Life Cover, Critical Illness Cover or Income Protection.
Do I need financial protection for my mortgage?
If you’d be unable to make your mortgage repayments if you couldn’t work, you should invest in financial protection. It’s not a legal requirement, but it is advisable to take out financial protection when you secure a new mortgage.
Life insurance ensures financial support for your mortgage should you or your partner fall ill or die suddenly. Financial protection helps with your living costs, too. In the event of illness or injury, your daily living costs can increase (with care, medication and equipment) whilst your income decreases. With a protection policy in place, your living costs – and that of your family – will be covered by a one-off or ongoing financial pay out.
Financial protection doesn’t only apply to homeowners – renters can also take out policies to ensure that they can continue to live in their homes if they suffer an income shock.
Types of financial protection for mortgages
Life Cover
Life Cover, also known as Life Insurance, provides a lump sum or monthly income payments to beneficiaries in the event of your death. The price of life cover varies depending on your circumstances. For example, medical history, age, occupation and address can all impact your monthly payments.
You can take out single or joint life cover policies.
Critical Illness Cover
With Critical Illness Cover, you’ll receive a tax-free lump sum if you’re diagnosed with a severe illness. This is designed to ensure your mortgage is repaid, help with living costs if you cannot work, and cover any medical costs due to your illness or injury.
You can take out Critical Illness Cover alongside Life Insurance, in a combined policy or as a standalone plan.
Income Protection
Income Protection provides a proportion of your income if you are left unable to work due to illness or injury. You can take out either short or long-term income protection policies.
Long-term income protection covers a longer period after you stop working. Often, long-term income protection policies run until you return to work, retire or pass away.
Short-term income protection covers a shorter period after you stop working, with payments not guaranteed for the long term. However, it can be useful for covering living costs in the early period after an income shock.
How much cover does my mortgage need?
How much financial protection you need depends on your personal circumstances. These include:
- Age – the younger you are, the longer you need financial cover for
- Family – those with partners and/or children may need more cover to support their families in the event of an income shock
- Mortgage length – if you want your cover to pay your mortgage, your policy will need to be as long as or longer than your mortgage
Don’t forget to factor in inflation when deciding how much cover you need. The cost of living is increasing with each year that goes by, so you should allow for this when calculating how much money you and your family would need to live on.
Speak to a professional protection adviser
A professional protection adviser can help you find the best financial protection cover for your needs. After assessing your financial situation, your adviser will provide expert, impartial advice to recommend policies that will ensure the well-being of you and your family should the worst happen.
Contact the team at Choice Mortgage Solutions today to find out more about our protection planning services.