Your Guide to Mortgage Protection

Safeguarding Your Lifestyle and Family’s Future

What is mortgage protection insurance?

Mortgage protection insurance is a vital safety net for you and your family. This tailored coverage ensures that your mortgage payments will be covered during challenging times, or a lump sum will be paid to allow you to repay your outstanding mortgage. You will need coverage based on the type of mortgage repayment plan you’ve agreed upon with your lender.

Choosing the right coverage

Is your mortgage interest-only or repayment-based? This affects whether you need decreasing term assurance or level term assurance.

Decreasing Term Assurance

Designed for repayment mortgages, the sum assured decreases over the policy’s duration to match the level of your declining debt.

Level Term Assurance

This option provides a fixed payout if the life assured passes away during the term, maintaining a constant lump sum. 

It is a fact that critical illnesses are likely to occur. Deciding whether to cover the entire mortgage in scenarios where you may encounter conditions like cancer, heart attacks, or strokes hinges on your financial considerations. Because the risk of this life event is higher, the premiums could be substantial for a significant mortgage.

An alternative approach involves covering the mortgage only in case of death. Acquiring critical illness coverage simultaneously, equivalent to at least two times your annual income, is recommended. This coverage, extending until retirement age, guarantees protection throughout your working years. This avenue offers flexibility – aiding in mortgage payments, accessing private medical care, home adaptations, or providing recovery time. Such an approach often proves more cost-effective and offers coverage within your budget.

Safeguarding income during illness or injury

Sick pay entitlement from your current employer should be your initial enquiry. However, self-employed individuals should prioritise income protection. For most, statutory sick pay (SSP)* is the norm, with a rate of £109.40 weekly, for up to 28 weeks. But, considering mortgage payments and essential expenses, income protection insurance emerges as a prudent solution.

*SSP as of February 2024 – Rates are subject to change. For current rates, please refer to this link.

This policy insures up to 70% of your gross annual earnings as a replacement income if you cannot work due to injury, sickness, or accident. It can be structured to cover essentials, ranging from monthly expenses to mortgage payments, extending to age 70.

These policies can be arranged to reflect your circumstances, by amending the following:

  • The monthly benefit amount you receive (you could cover just your essentials or the maximum allowed based on your income).
  • The Deferred/Waiting period, which refers to the time from which you are off work to the time the policy pays out. The shorter this period, the quicker you receive your payout, although the price will reflect this.
  • The length of time the monthly benefit is paid out. This can vary from a full term, which could provide peace of mind if you cannot work for an extended period. Or, a limited term payout, which could, for example, be limited to two years.

Evaluating your existing policies

If you possess an existing policy from a previous mortgage, it’s prudent to assess whether modifications can align it with your new mortgage requirements. The mortgage balance may be covered by amending the existing policy or by securing an additional one, depending on the circumstances.

Navigating your current employment benefits

While employee benefits are valuable, they often cease upon leaving employment. This vulnerability arises during job changes, redundancies, or dismissals. It’s crucial to recognise that these benefits are ‘benefits in kind,’ underscoring the importance of considering personal insurance coverage. We advise verifying existing provisions with your employer and making informed choices with expert guidance.

Coverage for pre-existing medical conditions

Eligibility for insurance coverage hinges on your medical history and budget. During assessments, our experts meticulously analyse your medical background. Skilfully packaging and negotiating terms with insurers, we provide estimates based on your supplied medical history. Open communication about your medical past is pivotal in determining costs.

Why is Henry Dannell’s different to standard service providers?

At Henry Dannell, our approach stands apart through a commitment to exceptional service. We empower clients with a comprehensive grasp of options, fostering educated decisions specific to your needs.

With unrestricted access to insurers across the market, our quotes are constructed based on your medical history. We manage the entire process from research, application, underwriting, finalising and implementation, through to arranging trusts. The transition from offer to our trust service, free of charge, is pivotal in sidestepping tax implications and ensuring a swift payout should a claim arise. Henry Dannell prioritises customised advice, ensuring your priorities are forefront.

Our objective is to equip you with the knowledge to choose wisely. With adept protection advice, your coverage evolves in sync with life’s stages, providing security every step of the way.

For expert advice and guidance, get in touch with us to find out more about how we can help you to safeguard your family and future.

Please note: This article acts as a guide and does not provide financial advice. Please also note that these plans have no cash-in value at any time and will cease at the end of the term. If premiums are not maintained, then cover will lapse. Plans may not cover all the definitions of a critical illness. The definitions vary between product providers and will be described in the key features and policy document if you go ahead with a plan.

Author:
Stephen Bourke
Mortgage & Protection Adviser
CONTACT

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