What types of insurance policies do you need to protect your mortgage liability?
Now that you’ve completed the first step and have successfully secured a mortgage, it’s time to think about the right insurance to protect the home you’ve worked so hard for.
There is a lot at stake with mortgage protection! Wouldn’t you want some peace of mind knowing that your dependents will still have a roof over their heads even in any worst-case scenario? What if you die during the mortgage term, without having made all the payments, or you end up falling ill and you are unable to work without pay and can’t make the monthly mortgage payments? Protecting our clients’ interests is at the core of what we do and although life may seem stable right now, securing the right insurance policy or the combination of different covers, is all about preparing for the ‘what ifs’.
We’ve rounded up 3 different types of protection for your home, so that no matter how uncertain life is, you can be certain that your family will have a roof over their heads and would never have to worry about losing their home. They are:
- Life insurance
- Mortgage Protection Insurance
- Income protection
Life Insurance
Contrary to what you may have heard, a life insurance is not mandatory to have but let us explain why it is essential that you do.
Life insurance can offer the comfort of knowing your family is taken care of, if you pass away and very simply, can pay off and settle your entire mortgage if you die during the term of the policy. A lump sum payment will be paid to your family, who can use the funds to settle the outstanding mortgage and be rid of any worries or anxieties about having a roof over their heads.
Additionally, a life insurance policy can ensure your family can settle any outstanding household bills, any current or future school fees, any money you have borrowed that you still need to pay back and provide extra funds that would help your loved ones if you were no longer around.
Generally speaking, a regular life insurance policy is taken out as a ‘level-term’ policy which means that the sum assured is fixed for the entire length of the policy and therefore a pre-defined lump sum is paid if you die within the term. The advantage here is that you are able to leave a higher lump sum for your dependants to cover more than just your mortgage, for example other debts and/or ongoing spending.
Mortgage Protection Insurance
The overall objective of a Mortgage Protection Insurance policy is to ensure that any loved one whom survives you, need not worry about mortgage repayments or be forced to sell the property to repay the amount still owed. Since its objective is to settle only the mortgage outstanding, these policies are cheaper than the regular Life Insurance policies.
A Mortgage Protection Insurance Policy is usually taken out as a ‘Decreasing Term’, which means the sum assured reduces in line with your remaining mortgage balance. This is the most common, and the most cost effective plan as the amount you’re covered for decreases as you pay your mortgage off and this leaves your dependants with enough money to pay the rest of the mortgage.
So, a typical Mortgage Protection Insurance Policy is specifically tailored towards only settling the mortgage and doesn’t provide for any other outstanding liabilities in the case of any untimely demise during the term of the policy. While decreasing term mortgage insurance is typically cheaper than level term, it’s important to consider your dependents, giving serious thought to whether or not this is the best policy for you and your loved ones.
Income Protection
Whilst this type of protection is fairly new, we cannot emphasize the importance of not underestimating its value.
How this type of insurance works is that if you are forced to to take time off work due to any medical illness or injury, without your salary, Income Protection insurance ensures that an individual is in receipt of a monthly payout to cover their family’s living expenses and liabilities (monthly mortgage payments, etc.). So, with this insurance, you don’t have to worry about how you or your family will have to settle the monthly mortgage payments, in the event you were unable to work for medical reasons.
In conclusion, while there are numerous varied insurance plans and protection covers available in the market. As overwhelming as this may be, leave it to us, to help you find the perfect protection plan for your family and circumstances.
