When you’re a homeowner, it pays to be prepared.
That’s especially true when it comes to safeguarding your property and the ability for your family to live comfortably should you become ill, have an accident or, perish the thought, die.
During the home buying process, we’re all naturally focused on finding, negotiating and buying the perfect property with the right mortgage. However, once the process is completed, you’re suddenly the owner of a valuable asset with a large, long-term financial commitment. One that you or your family may lose if you can’t keep up your mortgage payments.
That’s why it’s worth thinking about getting critical illness cover, income protection cover, and life insurance once you become a homeowner.
Firstly, critical illness insurance covers you should you succumb to a serious illness (definitions vary from policy to policy), giving you a one-off lump sum, which dependent on the level of cover you choose, you could use to redeem your mortgage in full, part or to simply provide a significant financial boost when you most need it. Worth noting, it doesn’t matter whether you are still able to work or not, your critical illness cover will be paid regardless.
In your application, you’ll be asked how old you are and whether you have any underlying health conditions. It’s vital you don’t keep anything back, as this could jeopardise any potential claims. You’ll also have to tell the insurer what you do for a living as some jobs are seen as riskier than others and incur more expensive premiums.
When considering this cover, our advisers will show you which illnesses are covered with the insurer you’re applying to so make sure you know what you’re signing up for. It’s also wise to share the details of the plan with your partner so they can get in touch with the insurers if you’re incapable of doing so.
In a similar vein is income protection benefit (IPB). If you’re unable to work, say through illness, then it will pay you a tax-free salary until you return to work. The advantages of IPB are straightforward: you can receive up to 60 percent of your salary tax-free every month, ensuring you are able to cover your mortgage and other monthly outgoings. There are also low-cost options available, which run for two years.
The policy is tailored to match, as closely as possible, the sick pay you receive from your employer so that you are paid by the policy, once your income is no longer being paid. This is called a deferred period.
The final cover we’re looking at is life insurance.
Life cover is often taken out for two main reasons. Firstly, to cover a mortgage debt. The idea is that if you die before your mortgage term ends, your chosen beneficiaries will receive a lump sum they can use to pay off the outstanding amount on your mortgage, giving them one less thing to deal with at a time of high stress and ensuring they can continue to live in the home when you’re gone.
Secondly, Family cover. In the event of death, an individual’s earnings will also be gone which could leave the surviving family with little financial help long term. Life cover can be taken out as a tax-free lump sum, or as an annual income replacement known as a Family Income Benefit (FIB).
There are two types of life insurance. The first is the ‘decreasing term’ option, where the amount your loved ones receive decreases over time, effectively in line with your mortgage, as you’re paying that off. The policy is designed to cover the outstanding debt at the time of claim. Decreasing term insurance is set up alongside a Repayment Mortgage. Premiums are discounted from the outset due to the fact the cover amount reduces.
The second type of cover is called ‘level term’ cover: here, your family receives the same amount of cash no matter when within the policy term, the policy is claimed on. This option fits well alongside an Interest Only Mortgage and for additional or family cover. Premiums are higher than ‘Decreasing Cover’ premiums.
One more tip! When you take out your mortgage life insurance, we’d recommend it’s ‘in trust’. This means it goes to your loved ones rather than your ‘estate’ and funds are quicker to access.
Charles Cameron & Associates’ experienced brokers offer life insurance, critical illness cover, and income protection advice and can help you whether you’re a first-time buyer, long-term homeowner, or even if you do not have a property or mortgage. If you’d like to find out more, click here.