Do I need a protection policy for my mortgage?
According to statistics published by the Association of British Insurers, every year over one million people become unable to work due to a serious illness or injury.
When you’re fit and healthy it’s natural to think it’ll never happen to you. But what if it does?
Current Statutory Sick Pay in the UK is only £99.35 per week. Would that be enough to cover your mortgage and other bills?
It’s important, when you’re taking out a mortgage, to consider these worst case scenarios and make sure you have a plan in place to ensure you won’t find yourself in financial hardship. This might be money in the bank for a rainy day, the salary of a spouse or partner or help from a parent. But make sure you do the maths and work out exactly how you would make ends meet if you were without your salary.
And if the numbers don’t add up? It might be worth considering a protection policy.
What types of protection policies are available?
Different protection products offer different things, so it’s useful to have an idea of what each one is about:
Income Protection Insurance
Income Protection is designed to guard against the loss of a salary or regular income. If you lose your job, for instance due to redundancy, or you are no longer able to work through accident or illness, your Income Protection policy will pay out regular payments that you can use in whatever way you need. It can give you peace of mind and time to look for another role without worrying how you’ll make ends meet.
Critical Illness Cover
Critical Illness Cover is similar, but works in a slightly different way. It is designed to pay out a lump sum that you can use to put security in place for your family in the event you’re diagnosed with a serious illness. You might choose to pay off your mortgage in full depending on the settlement amount.
Payment Protection Insurance
Similar to income protection, but more specific, payment protection will cover your regular mortgage payments if you become unable to make the payments for some reason. You would be able to claim, for instance, if you were made redundant or couldn’t work due to accident or illness.
The importance of paying your mortgage on time
Keeping up with your mortgage payments is important for a number of reasons.
Of course getting behind and not being able to make payments is stressful. But not only that, falling into arrears will leave an adverse mark on your credit score. This could impact your ability to apply for another mortgage or loan in the future.
And of course worst case scenario, if things continue and you can’t come to a payment plan or arrangement with your lender, you may find that they start proceedings to repossess the property. This is not only traumatic for the occupants of the home, you would also lose any capital that you have in the property.
It’s vital to avoid this situation for a number of reasons. And protection policies are a useful way to reduce the risk.
How much are protection policies?
How much you would need to pay for a protection or insurance policy will depend on a number of factors. Your age, occupation and health, for instance. You may need to answer questions about weight, smoking, pre-existing health conditions etc. And you will have to decide what level of cover you need to put in place to ensure any subsequent pay out will cover what you need it to.
Don’t panic though! While it may sound complicated, our protection experts are here to help. They can talk you through your options, discuss your requirements and make sure you’re only paying for the cover you need.