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Safeguard Your Home: An Essential Mortgage Protection Guide

Updated: May 17

Buying a home is a huge milestone in life, quite possibly your biggest investment. Just like any big investment, it's important to make sure you're properly protected. This article is here to help, offering a friendly guide to mortgage protection for first time buyers, home movers and particularly those with young families. We'll dive into why it's crucial to cover yourself against death, illness, or injury, making sure you can always maintain your mortgage repayments, regardless of what life throws at you.



What is Mortgage Protection?

Mortgage protection is an umbrella term encompassing various insurance products designed to protect you and your family financially in the event of death, serious illness, or injury. When you take on a mortgage to purchase a property, it is crucial to consider implementing some form of protection to ensure that you, your home, and your loved ones are secure.


Types of Mortgage Protection

There are several types of mortgage protection insurance plans designed to cover different eventualities. Your key options are:


1. Life Insurance

Life insurance is designed to pay out a lump sum to your beneficiaries in the event of your death during the term of the policy. This payout can be used to settle the mortgage, ensuring that your family can continue to live in their home without financial burden.


Key Features:

  • Lump sum paid in the event of your death

  • Ensures mortgage repayment, so one less large expense for your family to worry about

  • Can be tailored to cover both your mortgage and then with additional family protection

2. Critical Illness Cover

Critical illness cover, also referred to as serious illness cover, is designed to pay out a tax-free lump sum if you are diagnosed with a serious illness specified in the policy. This can include conditions such as heart attacks, strokes, certain cancers, and much more.


Key Features:

  • Covers a wide range of serious illnesses with options to upgrade your cover

  • Provides financial support for medical treatments and lifestyle adjustments

  • Helps maintain financial stability during your recovery

3. Income Protection

Income protection insurance replaces a portion of your income if you are unable to work due to illness or injury. This ensures you can continue to pay your mortgage and cover household expenses.


Key Features:

  • Pays up to 50% to 65% of your pre-tax earnings

  • Coverage can extend up to your retirement (long-term) or for a shorter duration (short-term)

  • Helps maintain financial stability during your recovery

  • And unlike Critical Illness Cover, Income Protection will cover you if you are unable to work due to stress or a mental illness


4. Accident, Sickness, and Unemployment Insurance

This short-term plan is designed to pay a fixed monthly amount, usually equal to your mortgage repayment, in the event of accident, sickness or periods of unemployment.


Key Features:

  • Provides temporary financial support usually up to 12 months

  • Covers your mortgage repayments during challenging times

  • Ideal if you are seeking short-term protection


5. Home Insurance

Home insurance is broadly divided into two categories: buildings insurance and contents insurance. Both are crucial in safeguarding your home from unforeseen events.


Key Features:

  • Buildings Insurance: Covers the structure of your home and permanent fixtures, a mandatory condition of mortgage offers

  • Contents Insurance: Protects personal belongings within the home, including coverage for items when you’re on the move

  • Optional add-ons like accidental damage cover and alternative accommodation ensure comprehensive protection



How Much Cover Should I Consider?

When deciding on the amount of coverage for life insurance, critical illness cover, and income protection, it is crucial to balance sufficient protection with affordability. Generally, your life insurance policy should be equal to the outstanding balance of your mortgage. This ensures that in the unfortunate event of your death, your mortgage can be fully repaid, allowing your family to stay in their home without financial stress.


Critical illness cover should also aim to match your mortgage amount. Whilst it is set up to help repay your mortgage, any payout could in fact assist with medical expenses, lifestyle adjustments, maintaining financial stability during recovery or simply to take a well deserved family holiday once you're better. However, critical illness cover can be quite costly. The key message here is that having some coverage, even if it is less than your mortgage amount, is better than having none at all. It provides a financial buffer that can ease the burden during challenging times.


Income protection should at least cover your monthly mortgage repayments. Ideally, you should aim to cover up to your maximum allowance, which typically ranges from 50% to 65% of your pre-tax earnings. This ensures that, should you be unable to work due to illness or injury, you can continue to meet your mortgage and household expenses, maintaining your financial stability.


Do I have to take out Mortgage Protection?

No. However, although lenders no longer require you to have mortgage protection insurance, it provides invaluable peace of mind. By securing a suitable policy, you safeguard your financial future and therefore protect your home, ensuring that unexpected events such as illness, injury, or unemployment won't jeopardise your ability to meet your mortgage payments. Taking this proactive step is crucial for protecting your biggest investment and keeping you / your family's future stable.


Choosing the Right Mortgage Protection

Selecting the right mortgage protection policy involves considering several factors, including your financial situation, health, and specific needs. Here are some tips:


  • Assess Your Needs: Evaluate what types of protection are most critical based on your circumstances and any cover you may already have, this could be with your employer

  • Compare Policies: Look at different providers and policies to find the best coverage and premiums

Benefits of Working with an Advisor

While comparison sites offer a quick snapshot of costs, consulting with a mortgage protection advisor brings several significant benefits, leading to more detailed and cost effective coverage, including:


  • An advisor can unlock access to more comprehensive protection options often not listed on comparison sites. These options include value-added benefits like 24/7 GP Services and other key features missing from online quotes

  • Given the wide variation in critical illness plans across providers, a knowledgeable advisor can guide you through these choices, ensuring you secure the best, affordable coverage tailored to your needs. An advisor will often use sophisticated software, such as CI Expert, to compare policies thoroughly, empowering you to make an informed decision

  • Working with an advisor means you're evaluating not just the price but also the quality of coverage across all protection plans, ensuring robust financial security and complete peace of mind

  • Moreover, your advisor will guide you through the application process, continuously monitor, and review your protection plan to ensure it meets your evolving needs

For further tips & insights, feel free to explore our additional articles:



The Risks of 'Putting it Off'

When it comes to safeguarding your future, timing is key. The optimal moment to consider securing any form of protection is now, particularly whilst you are in the prime of your health and fitness. Postponing this decision could lead to increased costs down the line and potentially affect your eligibility for favourable terms.


Conclusion

Mortgage protection is an essential consideration for anyone purchasing a home. From life insurance and critical illness cover to income protection and home insurance, each type of protection serves a unique purpose in safeguarding your home and family. By understanding the options available and selecting the right policies, you can ensure that your most significant investment is protected, providing peace of mind and financial security.


Ready to safeguard your home? Explore your options for mortgage protection with us today and ensure your family's future is secure.


As with all insurance policies, conditions and exclusions will apply.


Published by Beechwood Mortgages Ref: 219335 with review and approval from Stonebridge Mortgage Solutions Limited who is authorised and regulated by the Financial Conduct Authority Ref: 454811.

 

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