Protecting Your Mortgage

Why do I need to protect my mortgage?

Your mortgage is usually the biggest liability you will have. Your mortgage will not die with you but will still need to be repaid regardless.

If you have a partner, family or other dependents you need to consider the impact on them if a parent or guardian dies. Who will continue to pay the mortgage, and where will the finance/income come from. If they are unable to pay then their standard of living will usually decline dramatically. They may even lose their home.

If you are single then you need to consider the impact on you if you cannot work through illness or accident. We all have an 'it wont happen to me attitude', however national morbidity and mortality statistics do not bear out this self belief.

Statutory benefits are usually far smaller that we expect and it becomes more and more difficult to qualify for these benefits as successive governments try to find ways of trimming public expenditure.

If you want to maintain you and/or your family's independence and standard of living you need to consider the following:

Protection is available in 4 basic forms for three different purposes

• Life Assurance - Provides a lump sum in the event of death
• Critical Illness cover - Provides a lump sum on diagnosis of a Critical Illness
• Income Replacement -Provides an income in the event of illness or disability.
• Accident Sickness & Unemployment - provides an income for a maximum of 12 months

How Much Protection do I need?

A rule of thumb guideline is as follows:

Life Insurance: a sum equivalent to 10 times your family's yearly income plus a sum equal to the total of your mortgage and other debts.

Critical Illness: a sum equivalent to your family's yearly income plus a sum equal to the total of your mortgage and other debts.

Income Replacement: a sum based on a percentage of your income, this will generate a regular monthly income rather than a lump sum

Accident Sickness & Unemployment: You can insure for the amount of your monthly mortgage payment and up to an additional 25% to cover associated outgoings such as Life policies, buildings & contents etc

The total sum may of course combine a mixture of individual or joint cover depending on who generates the income. We will be able to provide you with guidelines to help you frame your personal solution.

Life Assurance

Life assurance is more of a friend than you may think. It all depends on your individual/family needs. There are so many varieties of insurance available to be linked to your life, expert advice is invaluable.

The ideal method of protecting your family against death is a life assurance policy. On Death the policy pays out a specific lump sum ensuring that the surviving dependants receive sufficient to produce an income to enable them to maintain the standard of living they are accustomed to and/or pay off the mortgage or other debts.

Critical Illness

A Critical illness policy pays out on diagnosis and survival of a specified serious illness, for example stroke, cancer or heart attack. This is intended to provide financial help at the point when it is most needed and enable recovery and recuperation. Critical illness protection can be considered to be the most important form of protection as you are far more likely to suffer a critical condition than you are to die. Often a small amount of this cover is sufficient.

We are fortunate that medical advances now enable us to survive illnesses that would have killed us in the past. However, recovery may still involve a period of permanent incapacity which may prevent us resuming our previous working routines.

Income replacement

In the event that you lose your ability to work (and therefore ability to earn sufficient income) you would still require an income to meet your normal living expenses and maintain your independence. Benefits would normally commence after an initial 'waiting' period of between1-12 months (decided at outset by you) and would continue until your retirement age, or until you return to work (whichever occurs first). Income replacement is essential for those whose employers do not provide it, or anyone who is self employed.

Accident Sickness & Unemployment Cover (ASU or MPPI)

With this type of policy you normally cover yourself for a fixed sum/monthly benefit. This would typically be the amount of your monthly mortgage payment and up to 25% extra to cover other associated outgoings. Policies normally have a maximum amount you can cover yourself for this could be between £2000 - £2500 per month.

You can choose a joint policy and elect the percentage of cover for each person. For example: If one partner earns twice as much as the other, then you may take 66% of the cover for the higher paid and the remainder for the lower.

It is possible to be able to choose the type of cover ie Unemployment only or Accident and sickness only. This will normally reduce the amount of the premium payable. You should consider your needs carefully before removing elements of the cover.

Premiums are normally calculated as £ per £100 of cover.

In the event of a claim the policy normally pays out for a maximum of 12 months.

'ASU' cover is often used in tandem with Income replacement or PHI cover. This enables the waiting period to be delayed accordingly on the Income replacement policy, this can reduce the premiums considerably. The income replacement benefits would, in this case, kick in after the ASU policy payments cease.

Do you already have cover?

If you already have lifecover in place, we may be able to provide you with better value cover.

The cost of life cover has dropped in recent years, due to companies reducing their rates.

Don't delay ring 'Mortgagehunters' today for a protection review

See whether we can improve your value for money

 

HM revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.