Matt from Assured FG joins this episode of the Mortgage and Protection Podcast to talk about mortgage protection.
Why is mortgage protection so important?
Without mortgage protection your family could struggle to make mortgage payments on their own if something were to happen to you. That would only make difficult times even worse – if you’d passed away or if you’re seriously ill and you’ve lost some income. Having suitable cover in place can help alleviate those financial pressures.
What happens if your mortgage is completed without protection?
As part of our process we inform our clients of what protections are available. We will demonstrate what they do and why they are important. But ultimately it’s your choice whether or not to take them.
We can only give you the facts and figures and paint the picture of what happens – because it’s insurance at the end of the day. It’s about the ‘what ifs,’ and some people are happy to take the chance.
But fortunately you can still take out life insurance or critical illness protection after your mortgage is completed. If you know the mortgage balance and how many years you’ve got left, we can still run personal illustrations to make sure that you are adequately covered.
Some people decide to take out a policy because they’ve seen something happen first hand – for example a family member’s been diagnosed with cancer or a work colleague has passed away.
If you were to pass away without protection in place, it’s down to your estate to find a way to pay off that mortgage, or your family will need to keep up the mortgage repayments. Plus, the lender may not offer the mortgage on the basis of one income, which could mean selling the house, downsizing or going into rented accommodation. Your partner could be doing all of this whilst caring for children – adding a lot of pressure on top of dealing with bereavement.
Why do we need life insurance?
In the simplest terms, it’s to protect the financial wellbeing and health of our loved ones during a very difficult period. Without suitable protection, it’s up to them to find a way to make things work. If you’re not around and there isn’t a plan in place, how would they cope?
So why take that risk if it’s affordable? Get some cover and make sure that your loved ones – your partner, wife, husband, children – have something to help deal with that loss.
Do I need critical illness cover?
Critical illness cover is a type of insurance that will pay out a lump sum in the event that you are diagnosed with a serious illness listed on your policy. The main three illnesses are heart attacks, strokes and cancer, but policies will cover anywhere between forty and a hundred different illnesses of varying severity.
Some of these illnesses may not necessarily take your life, but may mean you cannot work for a prolonged period of time or need to make adaptations around the home.
A critical illness policy will help relieve the pressure of meeting your monthly commitments and the stress of needing to get back to work. You can also include your children on the policy, which helps with needing time off to care for a child.
What is income protection?
Income protection is probably one of the most important types of cover and it’s the one you’re most likely to claim on.
Income protection pays out a regular monthly income if you are unable to work due to accident, sickness or injury. It will continue to pay that monthly income until you return to work, your policy comes to an end or you pass away.
Income protection helps take away the pressure if you’re seriously ill or have been off work for a long time. It reduces the stress of having to go back to work to make sure the mortgage and your bills are paid.
Some occupations will have very generous cover in place through sick pay, but for other people and the self-employed, if you can’t work you most likely don’t have an income. This type of policy is ideal for self-employed company directors that don’t have those benefits through their occupation.
Speak To An Expert
We offer complete flexibility around you and can meet either face-to-face or online via a video consultation. And with us all being qualified in our specialist areas and having access to a wide range of lenders, we are able to help you no matter which part of the mortgage journey you are at.
What is family income benefit?
Family income benefit is a form of life insurance or critical illness policy that’s designed in a slightly different way. Instead of receiving a lump sum, it provides a fixed monthly income to your family in the event of your death or critical illness.
Many people are happy to choose a lump sum on death, but some others might feel that receiving a vast amount of money could be quite daunting to manage. Family income benefit provides a regular monthly amount which could directly replace the loss of a salary, for example. It makes sure that your commitments are covered, and it’s easier to budget with instead of having hundreds of thousands in the bank as a one-off.
Can you combine these different protection policies?
We recommend having all the policies that we’ve just talked about, providing that meets your budget.
A good adviser will be able to explain each individual policy, what they do and how to prioritise them based on your personal circumstances.
What about planning for inheritance tax?
Having adequate life insurance in place can help take care of inheritance tax. It’s important to make sure that any life policies are placed into trust, as this means that the funds paid out will fall outside of your taxable estate. It means the lump sum can’t be used to pay an inheritance tax bill, if you’ve been lucky enough to meet the threshold.
How much should I budget for protection?
Everyone’s situations are so different. I’ve got clients that spend £5 a month; I’ve got one paying £437 pounds a month – and this is all designed around their needs.
Speaking with an adviser will help you prioritise the types of policies to take if budget is an issue. I like to try and keep things in perspective. When we discuss this I’ll look at what luxuries you’re paying for – your Netflix, how many takeaways a month you have, your phone insurance cost… and then use that as a ballpark figure, because if money’s getting tight you can cut back on a few comforts to make sure if something happens, everyone is protected.
It’s a daunting thing to think about, but it’s very important. Just give us a call and we’ll be pleased to explain more about protection and what it could mean to your specific situation.