Our homes are usually one of the two largest assets we acquire throughout our lives – in most cases your pension will be the second. A mortgage will often be the biggest financial debt we take on as individuals and it is important that, should death or serious ill-health occur, you and your family are not at risk of losing your home.
The purpose of protection, where a mortgage is involved, is to ensure you have sufficient cover and the right kind of cover, should something go wrong. This is equally important for both new mortgages and for existing ones.
Putting the right cover in place can give you peace of mind and enable you to focus on your health and wellbeing rather than worrying about whether you will have a roof over your heads should the unthinkable happen.
There are two types of protection cover which we believe should be considered in almost every instance when undertaking a mortgage; life cover and critical illness cover.
Putting life cover in place for your mortgage can give you peace of mind, particularly if you have a family. The pay-out from life cover will allow those left behind to settle the mortgage and have the security of owning their own home outright whilst they try to deal with the impact of bereavement. Protection of this nature can be set up in a number of ways depending on your needs. Considerations may include…
- The length of the mortgage term
- Whether you require cover over and above the outstanding mortgage balance, for example, to provide a financial buffer for the family
- Whether you wish for the amount of cover to decrease over time, in line with repayments on a capital repayment mortgage
Critical Illness Cover
Critical Illness cover can provide a significant boost to family finances at a time of severe emotional and potentially financial stress. These policies are designed to pay out a lump sum or can be structured to pay out monthly. The policy will pay out if the insured individual is diagnosed with one of the pre-specified critical illnesses, this is where specialist advice is key as each provider’s policies differ as to which critical illnesses are covered.
Advances to medical science mean that more and more people are surviving critical illnesses such as cancer. However, when you become ill, it can often mean that you are unable to work for lengthy and indeterminable periods of time. You may also require specialist help which can be very costly. When you do return to work, hours may need to be reduced in order to ease yourself back in. All of these factors can have a serious impact on household finances, not least the ability to repay your mortgage. The cover for such events can therefore be invaluable.
Flexibility is key here and the type of protection that you opt for should always be tailored and reviewed regularly to ensure it not only suits your circumstances at the beginning, but also throughout the life of the policy. This can be life cover on its own, critical illness cover, or even a combination of the two. This could be a lump sum pay out or a monthly pay out that increases in line with inflation to provide that extra layer of security. This flexibility gives you a choice; you can pay off the mortgage altogether, or use the money to meet your monthly financial obligations on an ongoing basis. Whatever is best for you.
The key here is that you are clear on what you are insured for and clear as to how this fits in to your financial projection. Whilst it is important to plan for an enjoyable, carefree retirement, it is also equally important that you plan for the worst-case scenarios. Only by having a plan that encompasses both will you truly have peace of mind.
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