Mortgage protection can provide a vital financial safety net were you unable to make repayments, but it comes in different guises. Which should you choose and what cover does each option provide? Darren Polson explains
One thing we can probably all agree on right now is the cost-of-living crisis seems to have lasted an age.
While we are seeing signs of recovery and more reasons to be optimistic, lots of us are still feeling the pinch, as the cost of everyday essentials like food and bills continue to rise.
As many of us consider cutting back on luxuries, one area you should think of as an important outgoing is protection.
Protection comes in many forms, from life insurance and critical illness to income protection and family income benefit. There are options on the market which cover almost every circumstance and eventuality.
It’s important to consider your family’s circumstances and think about what they’d need in the event of the worst happening.
Meanwhile, it’s also worth looking at the differences and similarities between the different types of products that are available. Take life insurance and critical illness – both are designed to cover your mortgage balance against the unexpected, and both pay out a tax-free lump sum. Yet they differ in pay-out conditions.
What are the different types of protection?
Life insurance aims to maintain your family’s lifestyle after your death, providing financial support. In contrast, critical illness cover helps you during recovery or can even help to fund expensive medical treatment if you face serious illness. Here’s more about Life Cover.
Critical illness cover typically ends once the pay-out is made. If you die after the policy ends, no more money is paid out. And that’s where life insurance comes in. So, if you want to make sure your family receive another lump sum after your death, it’s a good idea to have life insurance too. Find out more about critical illness cover here.
Income protection pays a tax-free monthly income if you’re unable to work due to illness or disability. This typically continues until you return to work or retire. Read about income protection in more detail here.
Family Income benefit is designed to replace a salary in the event of death and ensure your family’s lifestyle and bills can be maintained.
Why take out mortgage protection?
There is no question that protection services and products can be a crucial part of financial planning, especially for those with mortgage and family commitments. For people who lose their job or regular source of income, it can be devastating. And it must be said that the welfare safety net is flimsy at best.
No one who owns or rents their home would choose not to have home insurance. If it makes sense that you protect your home and its contents, why wouldn’t you protect yourself and your family?
Life is complicated, and we have no way of knowing what it has in store for us. Insurance and protection exist for a very good reason, and that reason is to provide you with some much-needed security during difficult times.
How to take out protection and ensure you are fully covered
It’s worthwhile speaking to a broker and getting advice on the best types of cover for your personal circumstances.
It’s also worth reviewing your cover on a regular basis, as your protection needs are likely to change throughout your lifetime. For example, if you move home, change job, go self-employed or start a family.
When times are tough it may seem odd to pay for something you hope you won’t ever need to use, but maybe it’s better to have it and not need it, than to need it and not have it?
Darren Polson is head of mortgage operations at Aberdein Considine
