When you’re on the housing ladder, you have an awful lot of outgoings – not least of which may be a mortgage that could now be costing twice as much as you used to pay. So, when you’re asked if you would you like to pay an extra amount to protect your mortgage payments in case of illness or death, your initial reaction might be to say no, especially if you’re under 40 and perhaps still in your first home.
Being unable to work is not something most of us want to consider, but adverse events do happen - often when we least expect them - so it’s worth at least knowing the options and costs for ensuring you will be able to stay in your home even if you’re not able to bring in an income. Then you can make a decision about whether you want to secure protection for your mortgage payments or if you would prefer to put that money into a financial investment, such as an ISA, which will give you a ‘buffer’ of capital should things go wrong.
Why might you need help with your mortgage payments?
We only have to look back at the recent pandemic to know that people can become poorly and even pass away, whatever age or level of fitness. And if you have children or a partner that doesn’t earn as much as you, knowing that the mortgage payments are taken care of if you’re not able to work can take away a lot of stress at what would be a very difficult time.
The last thing anyone would want is for you or a loved one who may be anxious or grieving to have to sell up or rent the property to someone else because it’s impossible to keep up the mortgage payments.
When do you not need to protect your mortgage payments?
If you’re a landlord with a tenant paying rent that covers all your costs, then it’s unlikely you will need to take out mortgage protection. Instead, it’s worth looking at specialist landlord rent guarantee insurance to cover you for lost rent in case your tenant defaults.
Alternatively, if you live in the property yourself and don’t have any dependents, you may only need critical illness cover, rather than a life policy that pays out should you pass away.
Finally, check what benefits you would get from your work. Some companies will have a ‘death in service’ policy and good sickness cover should you fall ill, which may negate the need to take out your own policy.
What’s important is to make sure you take advice from a mortgage and protection adviser, to assess whether you already have cover that will help you if you can no longer work – especially if it doesn’t cost any more and gives you peace of mind - or whether there’s a gap there that would benefit from being filled.
How can you insure your mortgage payments?
There are three main ways of protecting your mortgage payments in case you become poorly:
- Income Protection Insurance
These policies don’t just cover you if you have an accident or become ill, they can also help support you if you become redundant.
- Critical Illness Cover
These policies tend to offer a tax-free lump sum but this cover is specifically in case you become seriously ill and can’t work. This money could pay off all of the mortgage or just help cover the monthly payment costs.
- Payment Protection Insurance
This type of policy is similar to Income Protection and payouts can cover quite a few things, such as losing your job, being made redundant or suffering an illness or accident.
Life Insurance
This is a policy that typically pays out a lump sum if you pass away and it’s something that’s well worth considering if you have dependents – even if your home is mortgage free or you have just a small amount of borrowing.
Of course, rather than buying a policy, you could just open a savings account and set aside a pot of cash to cover payments in a worst-case scenario. The upside of this is that the money will still be yours if you don’t need it. The downside is that it may not be enough to cover all the costs, especially if you or the main mortgage payer were to become ill or pass away before you’ve had time to build up very much in savings.
How much does it cost to protect your mortgage payments?
As you would expect, the cost can vary depending on what kind of protection you choose.
Typically, the younger and healthier you are – and especially if you do a job that’s considered fairly safe - the costs will be a lot lower than if, for example, you are older, sky dive for a living and have pre-existing illnesses or conditions.
Is it a legal requirement to protect your mortgage payments?
While a car must be insured in order to be legally driven and buildings insurance is required if you have a mortgage, covering your mortgage payments is a choice.
Who can help you work out the pros and cons of protecting your mortgage?
Most mortgage and insurance brokers, as well as qualified financial advisors, should be able to help you.
Ideally, choose someone that is able to offer you a variety of policies from different providers. This will help ensure the policy is as bespoke as you need and can help to keep the costs as low as possible.
It shouldn’t cost you anything to get advice on mortgage protection so, if you don’t already have any cover, it’s well worth making enquiries. Our experts at Mortgage Scout will be happy to discuss your own personal situation and help you understand the various options that might be suitable.
For insurance business we offer products from a choice of insurers.
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