Insurance

When you take out a mortgage with a lender, it is recommended that take out additional insurances to protect yourself and your mortgage, if you are unable to pay your monthly premiums for any reason. The following is a summary of the various insurances you might consider.

Life Assurance

Life assurance ensures that in the event of a specified person’s death, a benefit is paid to a nominated person(s). This provides beneficiaries with money in the form of a lump sum so that the outstanding mortgage balance is repaid. Life assurance policies can be written for a specified time period (normally for the mortgage term), or longer if required. Normally, a level life assurance policy is used to cover an interest only loan, as the amount outstanding remains level over the mortgage term as does the life cover and a decreasing life policy is used to cover a repayment mortgage, as the debt decreases over time, as does the cover. A decreasing mortgage policy is the cheaper option of the 2 due to this fact.

Critical Illness

Critical illness cover provides a lump sum payment on diagnosis of one of a specified range of critical illnesses or medical conditions. This lump sum can repay the outstanding mortgage balance or be used for anything the recipient wishes (holiday, treatment, partial mortgage repayment etc). Typically, the range of illnesses and conditions covered include cancer, heart attack/stroke, total and permanent disability (normally 28+ in total).

The payment of benefits are not dependent on the person dying from the illness, as medical innovations these days enable many to recover and return to leading fulfilling lives.

Life or critical illness cover

Normally when protecting a mortgage, life and critical illness cover is combined together into one policy, so that in the event of either occurrence (death, or critical illness) the benefit is paid out and the mortgage is repaid. The policy stops after claim and is the usual choice for protecting. Generally this policy is cheaper than a standalone critical illness policy.

Life and Critical Illness cover

Provides life and critical illness cover in one policy, but they are separate benefits. Idea of this is that, if someone has a critical illness, this benefit pays out on diagnosis, but the policy does not stop and the associated life cover remains in force. This gives a potential double payout for a single person and quadruple payout for couples. A great policy, as after a critical illness, life cover is pretty much unobtainable, but remains in force under this policy. More expensive, but gives fuller protection.

Income Protection

Income protection policies provide replacement income in the event of an individual becoming unable to work due to suffering from an accident, sickness or disability. Income protection is particularly important for self-employed persons, who do not have any form of safety net apart from their own resources and the Government (nothing payable from the Government for 9 months though, then a low benefit).

There are generally two types of schemes Income Protection (IP) and Mortgage Payment Protection Insurance (MPPI) also called ASU (accident, sickness, and unemployment insurance).

IP is a long term policy, whose income payment is subject to differing maximums amongst different companies. It cannot be cancelled when in place or payment by the insurance company on the grounds of heavy claims experience. This policy can have any selected term to their normal retirement age with commencement of payment dates after a selected deferment period has passed (1,4,8,13,26 or 52week periods to fit in with personal preferences / employer’s packages).

ASU is a short term, temporary policy, which pays out in the event of accident, sickness, or unemployment and is normally provided by general insurance companies. It pays a selected benefit for a specified period of time (up to 2 years maximum), after a set deferment period has foregone. It can be cancelled due to heavy claims experience.

If the breadwinner is unable to work and there is no income, how are the bills going to be paid (mortgage / food / clothing / transport / bills etc)?

Which option to choose?

In the majority of cases, the best mortgage protection package will be a Life and Critical Illness policy and an Income Protection policy. In the event of Total and Permanent Disability, which means that a client could not work again, it would ensure that the mortgage is paid off, there is income until retirement and separate life cover to protect any dependents.

Whatever is proceeded with, it will be down to the clients’ own preferences and budget.

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This website is the website for Charles Antony, an Appointed Representative of the Whitechurch Network Limited, which is authorised and regulated by the Financial Service Authority.

Your home may be at risk if you do not keep up payments on a mortgage or other loan secured on it.