As the hackneyed phrase goes, ‘Your home may be repossessed if you do not keep up repayments on your mortgage’. Many assume this warning is aimed at those skipping mortgage instalments through mismanagement of funds or intentional non-payment but have you ever considered that you could find yourself unable to pay through no fault of your own, such as loss of earnings due to injury, serious illness or worse? If something happened to you, would your family be able to keep the roof over their head?
It is sensible to think about protection at the same time as you take out your mortgage. There is a wide range of options, and our advisers will tailor make a recommendation that best suits your protection needs. If you already have a mortgage, it isn’t too late to arrange cover now. And if you already have a policy, a home move is the perfect time to assess whether it still meets your current needs.
In the event that you die or are diagnosed with a terminal illness during the term of the policy, this product will pay a lump sum, tax free, to your dependents. The aim is usually to enable your dependents to pay off the mortgage and any other debts, and sometimes to leave an additional lump sum.
There are two main types. Level term pays out the same benefit amount, regardless of at what point in the policy term the claim is made. Traditionally, this was used to support interest-only mortgages, where the benefit would be used to pay off the capital. Decreasing term generally has cheaper premiums, as the benefit paid decreases with the term, in line with a repayment mortgage’s remaining balance.
Family Income Benefit
In the event that you die or suffer a critical or terminal illness during the term of the policy, family income benefit will provide a regular income, tax free, until the policy term expires. This aims to enable your family to continue paying the mortgage and other outgoings as normal.
Some policies also offer a hospitalisation benefit, which is usually a lump sum paid if you spend 28 days or more in hospital after an accident.
Critical Illness Cover
This product provides benefit if you are diagnosed with a critical illness during its term. You will usually receive a lump sum, tax free; however some policies offer an option for a monthly benefit payment.
As with life assurance, critical illness cover can pay a fixed amount throughout its term or a decreasing amount in line with your mortgage balance. Some policies also offer free critical illness cover for children.
If you suffer an illness or injury that prevents you working, this product will pay out a proportion of your usual earnings each month. Income protection is particularly useful for self employed workers.
Income protection is highly customisable; you choose the deferment period (how long you are off work before it starts paying), the monthly payment amount, and the benefit period (how long payment continues).
Accident, Sickness & Unemployment Cover (ASU)
If you lose your job through no fault of your own, or you are unable to work due to ill health, this product pays a proportion of your income. This can be very reassuring, especially if you work in a risky industry. However, the benefit payout period is usually limited to around 12 months and you should check the policy exclusions, as common problems such as back pain, stress and existing conditions are often not covered.
(As with all insurances, conditions and exclusions will apply.)