Mortgage Protection easing your biggest concerns.
Below is a MRR and PLR article in category Finance -> subcategory Insurance.
Mortgage Protection: Easing Your Biggest Concerns
Summary:
Owning a home often means having life insurance to cover your mortgage in case of death, but there are other risks to consider. This article explores these risks and offers solutions to protect your mortgage.---
When you purchase a new home, you take on a significant financial responsibility, often with a mortgage around £150,000. This is a long-term commitment, and the monthly payments can be a substantial portion of your income. So, how can you protect yourself and your family from potential financial setbacks?
Here are five main concerns that could impact your ability to keep up with mortgage payments:
1. Rising interest rates making repayments unaffordable
2. Job loss
3. Time off work due to illness or accident
4. Permanent inability to work
5. Death before the mortgage is paid off
The financial industry offers products to mitigate each of these risks. Let’s examine them:
Managing Interest Rate Increases
To shield yourself from rising interest rates, consider fixed or capped rate mortgages. A fixed rate mortgage locks in your interest rate, while a capped mortgage ensures your rate won’t exceed a certain level. Both options revert to standard variable rates after typically three to five years. Fixed rate mortgages are highly popular, making up 55% of new loans. When your fixed or capped period ends, you can re-mortgage for new rate-protected deals. For the most suitable options, consult a mortgage broker.
Safeguarding Against Job Loss
Worried about mortgage payments if you lose your job? Mortgage Payment Protection Insurance can cover redundancy, but not voluntary resignation or dismissal for misconduct. Online, expect to pay about £2.45 per £100 of monthly mortgage payment for coverage initiating 30 days after redundancy and lasting up to 12 months. Banks or mortgage companies may offer similar insurance, but their premiums can be higher.
Illness or Accident Coverage
To cover potential income loss from illness or accident, extend your protection policy. Check with your employer on how long they’ll pay you if you’re off work, as you may only need to insure for periods beyond their support. Online, this coverage costs about £2.45 per £100 monthly mortgage payment, starting after 30 days. Combining illness, accident, and unemployment coverage into one policy can cost around £3.95 monthly. Note that these policies only pay up to 12 months.
Dealing with Permanent Disability or Serious Illness
If a critical illness or accident prevents you from working permanently, consider Critical Illness Insurance. It's essential since 1 in 5 men and 1 in 6 women experience a critical illness before retirement. This insurance can cover your remaining mortgage if you can't continue working. Opt for decreasing cover if you have a repayment mortgage or level cover for interest-only mortgages.
Watch the survival period clause: policies require you to outlive the accident or diagnosis for a specific time (usually 28 days, sometimes reduced to 14) to receive payouts.
Planning for Unexpected Death
Lenders often require Mortgage Life Insurance to settle your mortgage in case of death. It's unnecessary if you’re single and living alone, as your estate could settle the debt by selling the property. However, for others, this insurance provides peace of mind. It’s available as decreasing cover for repayment mortgages or level cover for interest-only mortgages.
Cost-Effective Insurance Strategies
Insurance can be costly, but you can save by buying combined policies. A Mortgage Payment Protection Policy combining unemployment, accident, and illness coverage saves about 20%. For Critical Illness and Mortgage Life Insurance, combined policies can reduce costs by 20-25%, depending on personal factors.
Final Tips
Shop around online for the best deals. Banks and building societies offer convenience but often at a higher price. Discount brokers can offer reduced premiums by cutting commissions. It’s also wise to discuss your options with a life insurance adviser to avoid unexpected costs.
Stay lucky, stay fit, and stay well-insured!
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