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Protecting you and your mortgage

A mortgage is likely to be the biggest financial commitment you ever have. There are many insurance policies designed to protect your mortgage in the event of your death, sickness or inability to work.

In the event of not having the appropriate protection and the unthinkable happening, it remains your responsibility to meet your mortgage payment. An insurance policy is designed to take financial pressure away at what is usually a very difficult time.

Life insurance pays out a defined amount in the event of death or terminal illness. The amount paid is called the sum assured and generally mirrors the mortgage loan amount.

Life insurance can be arranged on a decreasing term basis and is usually done so to protect a capital and interest mortgage. A decreasing term policy will cover a life assured for a defined benefit, over a defined period of time. The sum assured will reduce over the term of the policy until it expires at the end of the term. At this point, assuming no changes have been made to the mortgage, the mortgage will have been paid off with no requirement for the mortgage protection to continue.

Life insurance can also be arranged on a level term basis. The sum assured with level term assurance policies remains fixed throughout the term so the potential claim amount will remain the same. This is particularly beneficial if you are on an interest only mortgage as your mortgage loan amount will not reduce over time. Additionally, a level term policy can be index-linked to ensure the real value of the policy is not eroded by inflation over the term of the policy.

Most life insurance policies include a terminal illness benefit. In the event of being diagnosed with a terminal illness with a life expectancy of less than 12 months, the insurance company will pay out before death.

Critical illness cover is a long term insurance policy which will pay a defined sum assured in the event of the policy holder suffering from a defined illness. These illnesses are set at the beginning of the policy.  Critical illness cover can be arranged in conjunction with life insurance.

Types of critical illnesses usually covered are cancer, heart attack, stroke, loss of hand/foot, third degree burns, Parkinson’s disease etc.

Many critical illness providers offer additional payments, also known as partial pay-outs, for less serious conditions.  In the event of a qualifying partial-pay-out illness, a lump sum is paid without having an effect on the amount the policy-holder is insured for, subject to provider’s terms and conditions. This lump sum can help to alleviate some of the financial burden of being unwell.

Many providers will also cover children’s critical illness at no extra cost, from birth until their 21st birthday as part of your own policy.

It is worth noting that critical illness cover is more expensive than life cover. This is due to the simple fact that the probability of needing to claim on a critical illness policy is much more likely.

Income Protection will pay out a regular income in the event of illness or injury which prevents you from working. The income will continue to be paid until you are fit to work again or until the end of the policy term, whichever comes first.

For those individuals with comprehensive sick pay, a deferred period can be included on an income protection policy. You may choose to delay your income protection policy benefit for six months, if you are in receipt of sick pay from your employer for six months. Alternatively, you may wish for your income protection policy to pay out immediately if you are self-employed.

Many income protection providers offer a continued benefit if you return to work on a reduced salary. Payments are currently tax free although this might change in the future.

Unlike critical illness cover, income protection policies pay your benefit for any qualifying illness that prevents you from working, even if it isn’t critical.

Mortgage Payment Protection Insurance is designed to meet your monthly mortgage payments in the event of injury or illness. Additionally, the policy has an unemployment benefit protecting you in the event of redundancy. A Mortgage Payment Protection policy usually has a shorter claim period, 12-24 months.

What will it cost?

It is important to understand that the cost of insurance varies greatly depending on a number of factors. Age, health, weight, lifestyle and occupation are all considered when applying for a policy.

Your insurances can be aligned as comprehensively as possible by your mortgage adviser within the defined budget set by you.

In seeking mortgage advice it is important for the adviser to have a good understanding of your circumstances, that’s why we sit down with our clients to discuss their needs face-to-face. To find your mortgage adviser, get in touch with us today or find out more about our mortgage advice services.

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