Mortgage Protection

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Kevin Spear & Dave Atkinson share their expertise on Mortgage Protection, answering some commonly asked questions.

Watch and listen to the podcast below.

Why is mortgage protection so important? 

There are a lot of mortgage brokers out there that don’t address the issue of protecting you or your family from death or injury or serious illness. That means there are a lot of mortgages out there without any protection. The FCA have made it their mission recently to put guidelines together that make sure financial advisors address this subject.

The reason not everyone addresses it, is because it’s just not very nice to discuss. It goes against the grain to arrange a mortgage, help someone achieve their dream and then talk about what happens if they should unfortunately die or be diagnosed with a serious illness. There’s a natural tendency to not want to have that conversation.

But here at Mortgage Marketplace we want to do right by every client. We believe we have a moral obligation to make sure that people are protected and understand the risk to themselves and their family. We give you the information to take action and set up a suite of products to achieve your goals at an affordable price, for any budget.

Why do we need life insurance?

Life insurance should really be called death insurance, because realistically it only ever pays out if you pass away or you’re terminally ill. The reason why it’s so important is because these things do happen on a daily basis. We don’t like to think about them and we don’t want to scare people, but at the end of the day your mortgage is a debt. It’s probably the biggest debt you’re ever going to have. 

So we need to talk about what happens in the worst case scenario – would you rather your family have – the debt or their home? It doesn’t cost a lot of money to take care of them.

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We can assist you with the whole mortgage process, from buying your first home, to remortgaging, moving home, equity release, buy to let, specialist mortgages and more.

Do I need critical illness cover? How does it differ from life insurance?

Life insurance pays out on death or diagnosis of a terminal illness. Critical illness cover is there in the event of something that you could receive treatment for and survive.

Typical conditions that are covered include heart attack, stroke, loss of a limb, loss of a  sense, etc. There are more than 60 conditions that are actually covered under critical illness cover. 

The cover is there to either pay off the mortgage for you in the event that you develop a critical illness, or to help you get better and back to living your life.

The biggest claim area in critical illness is for cancer. When you think about it, 20 years ago people died of cancer much more frequently – while these days it’s more commonly treatable. Because of the advances in medical treatments and a better prognosis, we see a lot of people claiming on critical illness policies due to cancer and a year later they’re going back to work. The policy is there to take care of that gap in income or to take the financial pressure off. 

Treatments for cancer can be experimental and expensive. Critical illness cover can also provide you with a lump sum to go towards getting treatment abroad if you choose.

What is income protection and how does it work?

It should really be called income replacement, because it’s there to replace your income for a period during which you’re unable to work, due to an accident or illness. It can go hand in hand with your critical illness cover whilst you’re going through treatment too. 

Primarily it replaces your income whilst you’re unwell for a reason covered by the policy. It will help you pay your bills, your mortgage and so on. 

To put this into perspective,  many of us probably spend something like £17 a month on Netflix, £7.99 on Disney Plus and another £8 on Amazon Prime. So that’s £32 a month just on TV.  How am I going to pay for that, let alone my mortgage? How will I pay for my pet insurance, car insurance etc. if I don’t have an income? Statistically, Brits are three times more likely to put their pets’ health before their own, insuring their furry friends (18%) ahead of taking out critical illness cover for themselves (6%), according to Lloyds.

Income protection is there to give you peace of mind while you’re on the road to recovery, and it’s going to support you financially during that period.

Many employers these days do not continue to pay salaries for long term sickness. Gone are the days where you would receive the majority of your income for a year. Many of us won’t receive much beyond statutory sick pay, which is £94 a week, which sadly is unlikely to be sufficient.

Income protection is really the starting point for the protection suite because if you have no income you have very limited financial outcomes. Plus, you’re more likely to be off sick for a couple of months or more than you are likely to develop a critical illness or die. 

So in reality, income protection is the option that is most likely going to be used, but it’s also the one most overlooked. 

What is family income benefit?

Family income benefit simply means money in your bank every month for a period of time, depending upon the cover. It may be £100,000 worth of life assurance split over 10 years, paying your family £10,000 a year in the event of a claim. 

It is one of the most cost-effective ways of getting life cover and it tends to be a very straightforward, cost-effective contract.

One of the biggest challenges at the moment for all households is the cost of living and part of our job in sourcing protection products is making them affordable. Family income benefit is a good starting point. 

An example here is a two parent family with 3 children. One of you is the main earner. If something were to happen to the main earner, their income can’t be replaced. 

Family income benefit can provide a sum of money for an agreed period of time, covering expenses and ensuring the surviving family can maintain a quality of life whilst coping with the loss of a loved one. 

Speak To An Expert

We can assist you with the whole mortgage process, from buying your first home, to remortgaging, moving home, equity release, buy to let, specialist mortgages and more.

Can you combine policies?

A lot of the time when we’re looking at providers they will build a suite of policies into one product. Some clients just want a very ‘vanilla’ solution – it might be heavily budget driven where there’s a limited amount of money to play with.

Meanwhile, other clients who might feel they are more exposed to risk, can and will spend more on cover. They might get some life cover, some critical illness and back it up with income protection. That tends to be a combination policy with a single premium.

Different people have different sets of needs and circumstances – joint or separate cover sis something we will discuss wand the recommendation is intended to be as cost-effective as possible, designed with the client’s requirements in mind.

Often combined policies are better from a cost perspective. With insurance, it’s not one size fits all. You don’t have to have a certain amount of money to get cover. We can tailor it to your specific needs, your circumstances and your finances. It’s always better to have something than nothing. 

How much should I budget? 

Right now everything’s going up in cos twe are all concerned about the cost of living.

From a budget perspective, we will have a chat with you about what you pay for the mortgage and all the things that go along with it – home insurance, shopping, bills etc. We have to make sure this is all affordable for you, now and ongoing.

Then we’ll look at insurance – life cover, income protection, critical illness… Don’t think of it as an add-on to your mortgage. It all works together to make sure you can stay in the home that you’ve worked so hard for. The budget is up to you, and we’ll get you the most suitable possible cover within that budget.

Clients have different budgets, driven by their circumstances, and their need for cover is also diverse.  The requirements for a typical first time buyer vs a family with children moving home will be impacted by differing drivers and financial ability.  Your adviser will look at your budget and overall mortgage and protection needs and will make recommendations to suit your circumstances.  

Kevin comments: “It’s just not right to arrange mortgages with no protection. I’ve been in the industry long enough now to have known clients to have died – and their spouse and children have been well looked after. Equally, I’ve had clients that have refused cover, they’ve died and left a difficult situation for those people that have survived them.”

Any further advice on mortgage protection?

We would like to share a story to show how protection can assist – take a look at our Youtube channel where there’s a roundtable discussion where this particular story is featured. This is the other side of the coin – a positive claims experience where everything worked exactly as it should.

Ten years ago I looked after a young family who moved and remortgaged and took out a critical illness policy. The client was 42 at the time, the children were about ten or eleven – two boys here in Bristol. It was a five-year fixed rate mortgage, so we didn’t hear too much from that client for a while. 

During that time she had had a diagnosis for cancer – and had forgotten about the critical illness policy. As soon as she realised we did the claim for her with Scottish Widows and she received a cheque for £110,000. That was actually a little bit more than the mortgage was, because they’d paid some off. It enabled the client to take 12 months off work to get better. 

She had a blood-borne cancer where the treatment she wanted wasn’t available in the UK. She went to Argentina for it, again thanks to the cash injection from her policy. Now, here we are ten years later and she’s alive and well, her boys have gone to University and I see them all around in Bristol. That’s how it should be. 

At the outset of a mortgage, people have no expectation of any of these things happening . It’s always ‘just in case’. The industry has a very good record for claims and payments and pays out over 98% of claims on critical illness. 

Speak to your adviser about protection – some policies offer tangible health benefits such as free access to a GP online.  Advice will be based on individual needs and circumstances

Protection beyond buildings insurance is not a legal requirement. Your home may be repossessed if you do not keep up with your mortgage repayments.

Frequently Asked Questions

Call us today on 0800 170 7474 to discuss your borrowing potential and eligiability.

Typically, the mortgage process will take 2-6 weeks to reach approval.

A mortgage offer is usually valid for 6 months.

Please be aware, the process is currently taking longer due to Covid-19. Please see question ‘How has Covid-19 affected the mortgage market?’.

Whilst you are not required to take out a life cover, our job is to ensure your mortgage is affordable, no matter what. It may not be nice to talk about, but if something were to happen to you, you want to know your family and investment are safe.

We will advise on all the options available and provide a no obligation quote from our partner providers.

You may need a solicitor, depending on the circumstance. Your adviser will discuss this with you, and should you need one we can put you in touch with our trusted partners, or you can use you own.