If you get in a situation of losing your regular income, you will be rightly concerned with how you would be able to continue to meet financial obligations, in particular the mortgage. Mortgage income protection insurance is designed to cover the cost of future mortgage repayments when unable to continue to work due to illness or sickness, and unemployment on a certain policies.
Here are the main classes of mortgage payment protection insurance available on the market:
Mortgage Life Insurance
Mortgage life insurance is designed to pay a lump sum in the event the policyholder dies during the term of the insurance. This means that the beneficiaries will receive a payout to cover the full balance of the mortgage.
You have two types of mortgage life insurance – Mortgage Level Term Insurance and Mortgage Decreasing Term Insurance. The type of policy chosen is likely to be dependent on your individual circumstances. With level term insurance, the assured sum remains level throughout the duration of the insurance and desirable for those with an interest-only mortgage. Whereas the decreasing term insurance drops in value as the balance of the mortgage is paid off each month, and more beneficial for those with a repayment type mortgage.
Critical Illness Insurance
Critical illness relates to the onset of a serious condition or disease like a heart attack or cancer. Illnesses like these are likely to impact 1 in 5 men and 1 in 4 women by the age of 65 to 70-years.
Critical illness policies are taken out by those wanting the reassurance of receiving a lump sum payout in the event of becoming disabled or seriously ill. Most of the policies incorporate a deferral clause where it would be necessary to be fully healthy for at least 31 days before the policy comes into effect.
On the diagnosis of a specific illness the insurance is able to come into force and make the required payout in line with the policy terms and conditions. The critical illness insurance policies incorporate at least 30 predetermined illnesses where claims are payable, though the illnesses may vary with the different policies offered by insurers.
Most if not all the policies incorporate seven key illnesses relating to a stroke, multiple sclerosis, major organ transplants, kidney failure, heart attack, coronary artery bypass, and cancer. A policy might also payout in the event the policyholder is left with a permanent disability resulting from illness or injury.
Income Protection & Redundancy Insurance
Income protection offers the policyholder the reassurance of knowing their financial obligations will continue to be met even when they are facing difficulties in life due to a significant illness or accident. They are able to offer a monthly fee which is tax-free and intended to be used to cover crucial bills, such as the mortgage, utility bills, council tax, etc. Certain income protection policies are available to provide cover up to the age of retirement.
Accident Sickness and Unemployment Insurance (ASU)
Simply put, the accident, sickness, and unemployment policies are designed to provide a sufficient income to make sure the mortgage repayments continue to be met in the circumstances where the policyholder suffers a serious illness or injury, or made redundant. Usually, the pay out on the ASU policies takes effect once the policyholder has been off work at least 30 consecutive days; the payments are made for a maximum of 12 months.
In summary, nobody is able to fully predict the future and the most sensible course of action to take is to arrange the right type of mortgage protection insurance to make sure you are planned for those times when difficulties may arise.