Protecting your mortgage is all about having insurance in place that can support you or your loved ones in paying the mortgage if you are unable to. Choosing the right mortgage protection can be a smart financial decision that could help your nearest and dearest to remain in the family home should the unexpected happen.
Think about your family finances and ask yourself the following questions:
- Who provides the main income?
- Does anyone else have the professional agility to top up their income if necessary?
- Would you be able to tighten your belts enough to avoid debt if the main income vanished?
- What would happen if your family unexpectedly has additional costs to cover, such as medical expenses or funeral arrangements?
It’s not nice to have to think about what might happen to your loved ones if you were to become seriously ill, develop a disability or even pass away. But thinking about it now and preparing measures to help support your family should something like that happen can take a load off your shoulders in the long term.
Below, we discuss four options that can help to financially support you or your loved ones in the event of losing your income.
Mortgage payment protection insurance
As the name suggests, mortgage payment protection insurance (MPPI) is a financial product specifically geared towards supporting you with your mortgage payments. In some cases, you might be able to add extra cover to the policy that allows you to cover other expenses such as utility bills or groceries – but this will increase your premiums.
MPPI offers monthly payments for a set duration. Depending on the policy, this might be until you can return to work, or there may be a cut off point. The amount you receive each month is usually dependent on the size of your monthly mortgage payments.
Plus, it’s important to know that there will likely be a deferment period – so you’ll have to manage on your own for a set duration before your insurance starts to pay out. In some circumstances, your statutory sick pay can help with this. Some, but not all, MPPI providers backdate payments to cover this period.
You can also customise your policy in terms of what triggers a payout. For instance, you might want to be covered for accidents, illness and redundancy, or you might want to lower your premiums by choosing a lower coverage option.
Income protection insurance
Income protection insurance is similar to MPPI in that it too pays a monthly sum to help replace your income while you’re out of work. Like MPPI, income protection won’t be a 1:1 replacement for your salary – you’ll likely get around 50 to 65% of your usual monthly income instead.
Another similarity is that there’ll usually be a deferment period before your payments start coming through if you make a claim. You can often set this yourself when setting up the policy – bear in mind how much sick pay you’re entitled to, as this can help you to cover your expenses for a short time.
One key difference, though, lies in the fact that income protection doesn’t usually cover you if you get made redundant at work. So, if you’re looking for this type of coverage, a different kind of insurance might be a better choice.
Life insurance
Life insurance is a form of cover familiar to many – put simply, it pays out if the policyholder dies. Unlike some other types of cover, life insurance typically pays out a lump sum to your loved ones rather than smaller, monthly payments. This means it can help with paying part or all of your mortgage, funeral costs and living expenses.
The main drawback of life insurance for mortgage protection is that it only pays out if you die or if you’re diagnosed with a terminal illness. So, if you were to develop a disability or a serious illness that keeps you from working, your life insurance won’t be able to help with your mortgage payments unless you opt for additional insurance such as critical illness cover.
On the other hand, a lump sum payment for life insurance could allow your family to pay off the mortgage entirely in the event of your death, which would wipe out a significant financial obligation for them. This could significantly ease the financial burden left without your income.
Critical illness cover
Last but not least, critical illness cover pays out a lump sum if you find yourself with a serious illness or injury covered by the policy. Different policies will vary in terms of the exact conditions covered, but most will cover the following:
- Heart attack or stroke
- Paraplegia
- Loss of limbs or senses (e.g. blindness or deafness)
- Debilitating diseases such as cancer, Parkinson’s or multiple sclerosis.
Sometimes critical illness cover might be combined with another policy such as life insurance or MPPI, or your income protection insurance may offer the same coverage. Either way, it’s good practice to check other types of cover, whether you already have them or are just thinking about it, to be sure you’re making the right choice.
As the name suggests, critical illness offers no cover for unexpected death or redundancy. Additionally, if you have a personal or family history of certain conditions, these may be excluded from the policy.
At the end of the day, the right form of protection to ensure you and your loved ones can stay in the family home will depend on your personal circumstances, budget and your requirements going forward. Taking the time to have an in-depth discussion with a professional and make a considered decision can help to ensure you get the cover that is right for you.
