If there’s one thing you can be sure of in life, it is that it can throw you unexpected circumstances. When you take out a mortgage, you may be offered a protection policy. There are a number of types of protection policy available. Which is right for you depends on your age, lifestyle and financial situation. No matter which policy you choose, it is designed to lessen the financial burden should the unexpected happen. It can provide financial security for your loved ones.
In this article, we’ll discuss some of the different protection policies available, and how they’ll support your family in the event of your passing.
Life insurance
Life insurance, whilst not a requirement for taking out a mortgage, can provide great peace of mind. It will pay out a tax-free lump sum in the event of your death. This can be used to pay off your remaining debt from your mortgage. It will alleviate financial pressure and stress in the event of your death. This could be essential during a time of grief and distress for your loved ones. Your family will be able to stay in your home and maintain their current lifestyle.
It can be particularly important if you are taking out your mortgage with a partner. Your mortgage deal will have been offered based on two salaries. If one of these salaries is no longer there, life insurance will help to cover the lost income in relation to your mortgage.
Family income
Similar to life insurance, family income is paid out to your loved ones on your death. Unlike life insurance, however, the cover is paid out on a monthly basis. They are tax-free payments and continue being paid for the term of the policy. As it is paid monthly, this protection mimics family income that has been lost following your death. Payments will only continue for the duration of the term. This means that if a claim is made towards the end of the policy, there will not be many payments made. The amount your premiums will be depends on how much you wish monthly payments to be. The larger the payments you require, the higher your monthly premiums.
Some things to consider with family income cover are that there is no pay-out should you live beyond the end of your term. The total amount paid will also lessen over time. Family protection is not the most suitable option if you’re looking to pay off your mortgage in full. With monthly payments rather than one lump sum, it is designed to cover day-to-day expenses rather than a larger debt like a mortgage. The suitability of family income protection for you depends on your requirements should a claim need to be made.
Income protection
This form of protection policy is designed to support you financially if you are unable to work due to sickness or injury. These regular, monthly tax-free instalments will replace part of your income whilst you are not at work. The payments will usually continue until you are back at work, or the end of your policy, whichever comes first. Unless otherwise defined, your policy will end at a defined retirement age, for example age 65.
Income protection policies have some conditions in many cases. It is common that a condition for policyholders is they must be employed. So claims cannot be paid out if you are made redundant. There is often a waiting period, from 4 to 12 weeks, after you stop work due to illness or injury before any payment is made. For those with lower premiums, the waiting period will be longer. There may also be some exclusions to the conditions covered by the policy, such as pre-existing conditions.
Income protection provides valuable peace of mind should the unexpected happen. It will ensure you’re able to meet the needs of any dependents whist you are not working. This is a useful protection policy if you have monthly expenses that cannot be missed. It should be remembered, though, that this form of policy is unlikely to cover your whole salary. Additional arrangements may therefore need to be made.
Critical illness cover
This form of protection policy supports you and your loved ones if you are diagnosed with a specific condition leaving you unable to work. It is designed to give you the time off work needed to recover from your illness. Pay-outs can also be used to help finance expensive medical treatments. The same is the case to cover the cost of any home adaptations that may be required.
When claims are made, money is paid in a lump sum, and is free from tax. The policy will then typically come to an end. As the payment is made in one go, it can be used to pay off your mortgage. It should be noted that this policy type does not typically pay out in the event of your passing.
How Bell Mortgage Solutions can help
As you can see from this article, there are many protection policies available to you. They will each benefit you in different ways regarding your mortgage. Bell Mortgage Solutions will work with you to determine your needs, both now and in the event of your passing. We’ll then advise you in the most suitable option for you. Contact us to begin the conversation.
Please note: Your home may be repossessed if you do not keep up repayments on your mortgage.
The information contained within was correct at the time of publication but is subject to change.
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