Three things you can do to protect everything that matters
Could your family pay the mortgage should the worst happen or if you are sick or disabled and unable to work?
Lenders will try and help you if making payments becomes difficult or impossible, but in the longer term in most cases, they will move to repossess your home.
1. Take out Life Insurance
You’re not legally obliged to have life insurance for a mortgage, but some lenders may consider it as a precondition for letting you borrow money to buy a home (1).
The amount of life cover you need will depend on the size of your mortgage and the type of mortgage you have. Having life insurance in place can help minimise the financial impact that your death can have on your family and offer peace of mind to those you care about the most.
Naturally, all of us want to see our loved ones looked after once we are gone and many of us put insurance in place that gives them a strong financial future to continue doing the things that have created a strong family.
Most life insurance policies pay out a cash lump sum to your loved ones if you should die during the time that the policy is in force (1).
The range of Insurers who provide this cover is also very broad, with many detailed choices to be made on what is covered, how long you would like the policy to last, through to details such as who should be included on the insurance and how often you want to pay the premium. Today’s policies also bring with them a range of value-added services which means you don’t have to die to take advantage of the cover you put in place, and some even pay out early if you are diagnosed with a short time to live, making the final months of your life more bearable.
A Financial Adviser can talk you through the range of options available and make recommendations as to which kind of policy may be most appropriate for your individual circumstances.
2. Take out Critical Illness Cover
Life insurance covers the worst case scenario, but it’s also important to consider how you might pay your mortgage if you couldn’t work because of illness. Critical illness cover insurance is designed to protect you and your loved ones from the financial impact of you being diagnosed with and suffering for a period of time from a specified critical illness (2).
To help mitigate the financial risk, provide breathing space to get better and potentially life saving money for treatments not available on the NHS, critical illness insurance works by paying out a cash sum if you are diagnosed with or undergo a medical procedure for one of a number of predefined ABI conditions such as cancer, stroke or a heart attack added to other less common conditions that might affect you at any time. This money could then be used to help with childcare costs, household bills or maintaining a standard of living if you’re forced to take time off work to recover from the illness (2).
3. Take out Income Protection
Income protection insurance pays you a regular income if you can’t work because of sickness, injury or disability and continues until you return to paid work or you retire. Income protection insurance is also known as permanent health insurance (3).
The amount of income you are allowed to claim will not replace the exact amount of money you were earning before you had to stop work. You can expect to receive about a half to two-thirds of your earnings before tax from your normal job. This is because some money will be taken off for the state benefits you can claim, and also the income you get from the policy is tax free.
You can’t claim income protection payments straightaway if you fall ill or become disabled. You usually have to wait a minimum of four weeks but payments can start up to two years after you stop work. This is because you may not need the money straightaway as you may get sick pay from your employer or you may be able to claim statutory sick pay for up to 28 weeks after you stop work (3).
Financial Advisers are there to help
When things do go wrong, insurance can go a long way to providing the financial support and emotional wellbeing to you or your family at the times when it is needed most.
An advisers role is to make sure that you can afford your home at outset and give you options to be able to maintain your payment of the mortgage and stay in your home should your circumstances change, either financially or medically in the future. If you have any questions about protecting your family and your biggest asset or just want to understand about the risks you face, speak to a financial adviser.
Article supplied by SJ Financial Solutions - Stuart Mosley
Stuart Mosley (CeFA, CeMap, CLTM) founded SJ Financial Solutions in June 2005 having spent 12 years with big corporates such as Halifax and Santander. He felt the personal touch and straight speaking was missing from mortgage and protection services and set up SJ Financial Solutions to change this.
If you would like to get in touch with SJ Financial Solutions please see contact details here.
1 – Legal & General (2022) Do I need life insurance?. Available at: https://www.legalandgeneral.com/insurance/life-insurance/guides/do-i-need-life-insurance/ (Accessed 24th May 2022)
2 – Legal & General (2022) What is Critical Illness Cover?. Available at: https://www.legalandgeneral.com/insurance/life-insurance/critical-illness-cover/ (Accessed 24th May 2022)
3 – Legal & General (2022) Income Protection Insurance. Available at: https://www.legalandgeneral.com/insurance/income-protection-insurance/ (Accessed 24th May 2022)
Published: 01 June 2022