When you apply for a mortgage, your success depends on whether the lender feels confident that you’ll be able to repay them over time. That’s why they take into account your income and expenditure to determine whether you can afford your monthly payments – because they don’t want you to default on the loan.
But what happens if something unexpected occurs that prevents you from repaying your mortgage in the usual way? If you were made redundant at work, seriously injured or you passed away, your family may find it difficult to keep up with mortgage payments – and falling behind can have serious consequences.
That’s where mortgage protection comes into play – covering your mortgage and mortgage payments in the unfortunate event that you can’t.
What is mortgage protection insurance?
There are a few different kinds of mortgage protection insurance, and the right one for you will depend on your circumstances and financial requirements. These include:
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- Mortgage payment protection insurance
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- Life insurance
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- Critical illness cover
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- Income protection.
Though each type works in slightly different ways, the general idea is that they pay out in adverse situations to help cover your financial obligations in difficult times. Depending on the policy, you may be covered for additional funds, but at the very least these policies should provide either a lump sum to pay off some or all of your mortgage, or offer a monthly amount to help cover your mortgage payments.
This means that, if anything were to happen to you, the insurance payout would cover the repayment of your mortgage and take a huge financial responsibility off your loved ones’ shoulders.
For some situations, such as being made redundant from work, you might only need your payments to be covered for a short period such as 12 months. If you passed away, on the other hand, a full repayment could be vital to support your loved ones and allow them to continue living in the family home.
Typically, mortgage protection insurance will offer decreasing cover. This means that the payout decreases alongside your mortgage balance as you pay it off. Alternatively, you can opt for level term cover where the amount doesn’t decrease. If you choose this, it could mean that a payout later in life covers much more than just your remaining mortgage balance and may help support your family with other bills and obligations ahead.
Mortgage protection policies are desirable because they help to keep your family secure financially during difficult times. They can help you out if you:
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- Lose your job unexpectedly
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- Are injured or suffer a serious illness
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- Pass away.
However, it’s important to be aware that not all policies will cover all these situations as standard. Policies are usually customisable to suit your circumstances and needs, but be mindful that this may affect the cost of your monthly premiums. If you’re thinking of taking out mortgage protection insurance, your adviser will be able to walk you through all these decisions and more.
Do you need mortgage protection insurance?
Perhaps you’re looking to save as much money as possible when buying your new home and wonder whether mortgage protection is really the right choice for you. It may interest you to know that mortgage protection isn’t a legal requirement in the UK but it can offer you peace of mind to know that your mortgage is taken care of should the unexpected happen.
Take a moment to think about the future. Although none of us like to think about it, we don’t know what challenges lie ahead. Life can change quickly, and it’s good practice to have a plan in place that covers unpleasant possibilities. If you were to be seriously injured, fall critically ill or worse in the next few years, would your family be able to continue repaying the mortgage?
If you’re at all unsure about what to do, it’s well worth discussing your options with your mortgage or protection adviser. They can show you all the alternatives that provide the level of coverage you’re looking for so you can get a better idea of what mortgage protection means for you.
Typically, options that cover payments temporarily in a few specific circumstances tend to be less expensive than those that are more flexible or fully pay off your mortgage. On top of that, decreasing cover that reduces in line with your mortgage balance also tends to be more affordable – and many people find that, once their mortgage is taken care of, their financial obligations are greatly reduced.
At the end of the day, there’s no simple answer to whether or not you should get mortgage protection insurance. It all depends on your preferences, obligations, budget and circumstances – everyone is different. But if you’re struggling to decide the right course of action, speaking to a protection adviser can help to clarify your choices and take some stress out of this busy time in your life.
