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Errol Hall, joins the Mortgage and Protection Podcast once more, to discuss mortgage protection and the options available to you.
Why is mortgage protection so important?
Mortgage protection is important because you’re taking on probably the largest loan you will take in your whole life, so you want to protect that loan if the worst were to happen. This is a particularly important safety net if you are taking the mortgage jointly with another person, as the other person would be left to repay that loan, should you die before it’s paid off.
What about mortgages that have been completed without Protection?
The other person would be left with the mortgage to repay the mortgage if no protection is taken out and their partner dies. If, for example, they have a low income job, they may not be able to continue with the repayments, which would result in repossession.
Why do we need Life Insurance?
If you’re buying a property with somebody, the other person would be left with the debt if you died without life insurance in place. If you have a family, you’d want them to be able to stay in their home and in the lifestyle they are accustomed to. A Life Insurance policy will pay out if you die, to enable your surviving family to continue with their lives.
Do I need a Critical Illness Cover and how does it differ from Life Insurance?
Critical illness is a very beneficial policy. It covers you if you were to get a serious illness; like cancers, heart attacks and strokes. The cover is intended to soften the blow if you were to get one of these critical illnesses. If you’re unable to work, a lump sum is paid out from the policy, which could help you to continue your mortgage payments and take care of other lifestyle needs.
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What is Income Protection?
An Income Protection Policy will pay out in the event of any illness or accidents that incapacitate you to the point where you can’t work. It pays you an income while you’re unable to work due to illness, right up until you return to work, or in some cases for two years, it depends on the level of income protection that you take out. There are also Income Protection policies that are a little bit more expensive, but will continue to pay up until your retirement age.
What is Family Income Benefit?
Family income benefit is a Life Insurance Policy, but instead of paying your family a lump sum, this will pay them an annual lump sum. It could actually replace your income. If, for example, you’re earning £30,000 per year, a Family Income Benefit Policy could continue to pay your family that £30,000 per year, to cover the loss of your income if you died.
Can you combine different policies?
Yes, you can combine different policies together, depending on your budget. It’s possible to have a Life Policy that covers your mortgage balance and combine that with a Family Income Benefit that will pay whoever you left behind an income for a number of years. Then you can take an Income Protection Policy that will cover your income if you’re unable to work and a Critical Illness Policy that will give you a lump sum if you are diagnosed with a critical illness. You can combine all policies if your budget stretches that far.
It’s important to decide what’s really important to you, which is where the protection conversation comes in. We will work within a client’s budget to find them the most extensive cover that they can afford.
What about planning for Inheritance Tax?
With a Life Insurance Policy, you can create a trust form. This means that if anything were to happen to you, the policy will be held in trust so that it doesn’t get stuck in probate. We can put a policy in trust, that won’t be part of your whole estate, so your relatives won’t be liable to pay Inheritance Tax.
How much should I budget?
Budget will really depend on what you can afford and what you’d be able to continue to afford. This is an individual consideration and something we would discuss with a client alongside mortgage budgets. If you can afford to pay £500 per month on your mortgage, then we will try to get your mortgage payments at around £400 per month, to give you a little bit extra to spend on protecting your mortgage, which is really important.
This type of life cover is age based as well, so the older you are, the more expensive it will be to take one of the policies out. It’s therefore good to think about these sorts of things when you’re first getting your first house.
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If you have any protection related queries or questions about anything that has been discussed above, we would be happy to help you any time.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.