Your mortgage is likely to be the biggest financial commitment of your life so it makes sense to protect it – and the person responsible for paying the mortgage.
You will have worked so hard to save a large enough deposit to buy your home, it is common sense to insure the person or people paying the mortgage to make sure you and your family can continue to live there – no matter what happens.
There may be a fee for mortgage advice, the precise amount will depend on your circumstances but we estimate that it will be £299. We do not charge a fee for our services for New Build Homes; we receive commission from the provider.
Life assurance will pay out to a partner or someone you nominate if you were to die.
If you are buying or have bought a house and you are living there with a partner or other dependents, it usually makes sense to take out a life assurance policy, especially if you are paying part or all of the mortgage. It is designed to provide you with the peace of mind that your mortgage will be paid off if you die so your loved ones will not have to struggle to meet monthly mortgage payments or, worse still, sell your home because they can’t afford to live there any more.
Life assurance can be incredibly good value. Usually it costs no more than just a few pence a day to protect your loved ones. You can decide how much you want the level of cover, or insurance, to be and how it is paid out. You can also decide if you want it to cover just your mortgage or provide additional money too.
There are three types of life assurance:
Level term life assurance
This is the most popular type of life assurance. These policies run for a fixed period of time, usually for the length of your mortgage – although you can take it out for longer so that your family will receive a set amount if you die.
A level term policy pays out a lump sum if you die within the term of the policy. The amount that it will pay out usually stays the same or ‘level’ throughout the term (hence the name) and so it will not go up with inflation or for any other reason. The amount that you pay every month usually stays the same for the whole term too.
Decreasing term assurance
Decreasing term assurance is ideal if you just want to cover a debt that will reduce over time – such as your mortgage. As a result, decreasing term life assurance usually runs for the length of your mortgage and covers just the amount that you owe to the lender. It is called ‘decreasing term’ as the amount that your policy will pay out decreases as your mortgage gets smaller. As the amount insured gets less your monthly payments will also reduce which makes this a cheaper option than level term assurance.
Whole of life policy
A ‘whole of life’ policy will pay out an amount of money that you choose on your death as long as you are making your monthly premium payments. The benefit of this is that you can ensure that the amount paid out is more than is owed on your mortgage so that your family also have a lump sum to help them should you die.
Depending on which type of life assurance you take out, the cost can vary so at Mortgage Pathways we work with a panel of world class life assurance providers to get you the best cover at the very best prices.
Life assurance is always cheaper the younger you are, so it is a good idea to take out a policy as soon as you can and leave it in place, as if you cancel a policy and then take out another it may well be more expensive.
It is desperately sad that many people who become seriously ill and can no longer work then also find themselves unable to cope financially. In the worst cases, we hear of people with cancer losing their homes because they can no longer keep up their mortgage payments or pay their bills.
Critical illness cover is an insurance policy that helps to protect against this. Critical illness cover will pay out a tax free lump sum of money if you get a specific illness or medical condition such as a heart attack, a stroke or some types of cancer. It will also usually pay out if you suffer a permanent disability such as losing a limb or damaging your back for example.
You can use the money in any way you wish but many people use it to clear debts, pay for medical bills or pay for alterations to their home to help them to cope with their disability. Other people invest the money to generate an income for their family to live off. It can offer a vital financial lifeline in times of crisis, helping to take away at least one worry.
Cover for children
Many insurers will also offer specialist critical illness cover for children for no extra cost.
Accident, sickness and unemployment (ASU)
Many people believe that the state will look after them if they are sick and cannot work. However, benefits now are as little as £70 a week, while most people’s outgoings on essential food and bills are significantly higher than this. What is worse is that it can take much form filling and many weeks before you receive any money from the state at all – and that is assuming that you qualify.
Accident, sickness and unemployment insurance provides you with peace of mind as it provides you with a monthly payment should you lose your job through no fault of your own and be unable to work, for example through illness, an accident or injury, or by being made redundant.
ASU will usually pay you a proportion of your salary for a period of time, usually for up to 12 months. This will help you to pay your usual monthly bills while you cannot work. You can decide how soon you would like it to pay out, for example after a month, three months or even after six months. The longer the waiting period, the cheaper the policy, although you need to be certain that you will have enough savings to live on in the meantime.
You cannot take out an ASU policy if you know you are about to be made redundant, as the policy will be invalid. It is also much harder to get cover if you are self-employed, but our qualified advisers will talk you through what is the best policy for you to provide you with the peace of mind you need.
Mortgage Payment Protection
Mortgage Payment Protection Insurance (MPPI) is designed to cover the cost of your mortgage payments in the event that an accident, sickness or unemployment stops you from working.
They will only cover the amount of your mortgage and will usually pay out for a year, but with two months before you receive any money. Unless you have additional savings, it is usually better to take out an ASU policy that will pay out more money so you have the peace of mind of knowing that all your bills will be paid, not just your mortgage.
“Given the low levels of state benefits available and the difficulties in claiming them, everyone of working age should consider IP.” Which
An income protection policy pays out a tax free percentage of your salary if you are unable to work due to injury or illness. Unlike ASU which usually only pays out for a year, income protection will pay out until retirement, death or until you return to work.
Interestingly, of all insurance products, income protection is the one that is claimed on the most. It can provide an absolute lifeline if you are sick by providing you with a regular income until you are well enough to return to work or until the end for the policy.
You can choose the amount of cover that you want to take out, the lower the amount you want your policy to pay out the lower the payments, but it is a false economy to reduce the monthly payments and then not have enough money to live on should the worst happen and you need to call on the policy.
Talk to our specialist advisers to get a quote to ensure that not only can you buy your house but that you can afford to stay in it – whatever the future may bring.
There are two types of home insurance: buildings and contents.
Buildings insurance covers the building itself and most lenders will insist that you take out this policy before they will lend you a mortgage.
Buildings insurance will cover you should you have a problem with the structure of the building itself, such as the roof, walls or windows. It should also pay out if your home is affected by a fire, flood, burst pipes or subsidence along with many other things that affect the structure of the building itself.
A lender will usually request that you take out enough insurance to cover the cost of rebuilding your home should your house be destroyed, although this is usually lower than the sale cost of your home.
Once you have paid for your home, decorated it, carpeted it and spent time, love and money buying all the things most precious to you, it makes perfect sense to make sure that those things are insured. This is not just in case of shocking events such a burglary, but also events that may cause damage, such as fire or a water leak.
Contents insurance will also cover items such as clothing, carpets, curtains, and all electrical equipment – in short everything in your house. It will also cover jewellery and most policies will enable you to insure individual valuable items that you take out of the house, such as rings, ipods or computers for a small extra charge.
Most people significantly underestimate the value of their contents. A recent estimate calculated that the value of the contents of a family of four is £55,000. Few people could afford to shell that out if something happened to their home so it makes sense to make sure your home is insured for the right amount of money.