When planning your finances for the future, it is important to make sure you have adequate insurance cover for your main commitments. Decisions such as taking out a mortgage to buy a property could be one of the biggest commitments you make in life.
As a responsible borrower, you need to ensure that you can continue to make repayments in the event of a serious change in circumstances.
You may be required by your mortgage provider to have cover for your mortgage in the event that a change of circumstances affects your ability to make your monthly mortgage payments. There are three options for insurance related to mortgage that will be discussed here: Mortgage Protection, Life Insurance, Critical Illness Cover.
What Is Mortgage Protection?
Mortgage Protection is an insurance product. It is designed to ensure that your mortgage payments are still made if illness or unemployment prevents you from working. Mortgage Protection features monthly payouts up to a percentage of your salary at the time you were no longer able to work.
They are designed to start paying out within 31-60 after you claim, to give you piece of mind during a challenging time. Policies are often capped to pay out for a maximum of twelve months, so are not designed to be a long-term solution to a change in circumstance.
What Is Life Insurance?
Life Insurance is an insurance product. It is designed to provide for your next of kin and dependents in the unfortunate event of your death. Life Insurance features a one-off lump-sum payment defined in the insurance policy.
They are designed to provide cover for various factors that would be impacted by your loss of life such as mortgage payments, funeral expenses, education fees and loss of income. Life Insurance is designed to be a lump-sum long-term solution to a change in circumstance.
What Is Critical Illness Cover?
Critical Illness Cover is an insurance product. It is designed to provide for your medical expenses in the event of you suffering serious illness. Critical Illness Cover features a one-off lump-sum payment defined in the insurance policy.
They are designed to provide cover for various factors that would be impacted by your illness and inability to work such as medical expenses, accessibility costs, mortgage payments, and loss of income. Critical Illness Cover is designed to be a lump-sum long-term solution to a change in circumstance.
Which Is Best?
When comparing insurance policies it is not as straightforward as saying which is best. Each policy is different and has different features. Mortgage Protection is a financial lifeline when a change in circumstances that prevents you from working the short-term.
Life Insurance and Critical Illness Cover tend to be larger, more permanent solutions to longer term changes in circumstance. The best policy for you might not be the best policy for someone else.
What Is The Cost?
The cost of the different policies reflects the potential payouts from each, the potential paying in period and the likelihood of a claim. As a general rule, life insurance has the cheapest monthly premium because will only payout in the untimely event of your death.
The cost of Critical Illness Cover is higher and impacted by factors such as your general health and whether you smoke or drink. Because Mortgage Payment Protection can be claimed in a wider range of change of circumstance, the monthly premium is generally the highest of the three.
How To Choose?
There are several factors to consider based on the points discussed here. The make-up of your household and the impact of loss of income being the most significant.
Once you’re clear on which insurance policy you need (and this may be dictated by your mortgage provider), you should be able to compare policies on moneyexpert.com.
What factors will you have to consider when choosing your insurance cover for your mortgage?