Buying property usually requires a mortgage and that means you are taking on a long-term financial commitment. That also means it is time to think about the right protection for your finances.
The pleasure of property.
So, this is an article about protecting your financial future when you take on a mortgage. I am not going to be all doom and gloom about safeguarding the payment of your mortgage commitment though because firstly, it is usually necessary when it comes to buying a home, and also, buying a property is a wonderful moment for anyone. First time buyers are excited by their first true home, further up the chain people are often moving to accommodate their growing families or finding their new dream home. In some cases, it is part of a growing business portfolio whether that is for first time ‘flippers’ to seasoned landlords. We have been doing this job a long time and I can tell you that, whatever the reason you are getting a mortgage, the excitement of owning a new property never goes away.
Protecting yourself and making sure you have the right insurance in place is vital. That feeling of owning your property deserves to be protected and that means making sure the mortgage and your home are as risk free as possible.
So, what insurance and protection should you be thinking about? Well, there is a breakdown of the most common ones below to start you thinking about it. The important thing though is to make sure you are protecting yourself holistically. Some insurances may be requested by your mortgage lender, others simply make sense. As with any financial advice, some things are always a good idea, others will be about your personal circumstances.
Life Insurance
Life insurance is a fundamental component of a comprehensive financial plan because in the unfortunate event of your death, your loved ones are financially secure. You will need to compare the cost of cover, your needs, what benefits are provided and so on to make sure it does what you want it to do. For most people it is there to provide a lump sum payment to your family to protect them from also facing the burden of debt during an already difficult time.
Building Insurance
House/home insurance is usually a game of two halves if you live in the property. Your mortgage provider will want you to have building insurance to protect the home itself from the financial consequences of damage. Why do they want this? Well, to be blunt, they are protecting themselves. Until you fully pay off the mortgage they have a financial stake in your home. From your point of view the right buildings insurance means that you will be able to afford to repair and rebuild if anything untoward happens.
The second half of the home insurance game is contents insurance. This covers your possessions and the contents of your home. The mortgage company probably won’t need to see this though.
One last thought on the insurance for your property. Remember that, as well as your mortgage lender wanting to see buildings insurance in place, they may want it from the point you exchange contracts. Once the contracts have been exchanged you are responsible for protecting your property.
Income Protection
Income protection insurance is designed to replace a portion of your income if you are unable to work due to illness or injury so you can continue making your mortgage payments.
Income protection typically covers a percentage of your salary and can provide benefits until you are able to return to work, reach retirement age, or for a specified period.
Serious Illness Protection
Sometimes this is known as critical illness insurance and pays out a lump sum if you are diagnosed with a serious illness. If you do fall ill with any of the issues it covers it could provide the stability you need. What is covered, for how long and for what amount can vary, so it is important to carefully review the policy to ensure it aligns with your needs and potential health risks.
Mortgage Protection
Mortgage protection insurance is specifically designed to cover your mortgage payments in the event of death, illness, or unemployment. This type of insurance can take various forms, including decreasing term life insurance (which pays off the remaining mortgage balance as it decreases over time) and mortgage payment protection insurance (which covers your monthly mortgage payments for a certain period if you are unable to work).
What about the self-employed, freelancers and company directors?
If you own a business, you should consider additional protection.
Key types of business protection include:
- Key Person Insurance: This covers the loss of a key employee or business partner due to death or serious illness. The payout can be used to cover lost revenue, hire a replacement, or pay off business debts.
- Shareholder Protection: This ensures that in the event of a shareholder’s death or serious illness, the remaining shareholders can buy the shares without financial strain, thus maintaining control of the business.
- Business Loan Protection: This is similar to mortgage protection but tailored for business loans. It ensures that outstanding business loans are paid off if a key person dies or becomes seriously ill.
- Income Protection for Business Owners: This covers the business owner’s income if they are unable to work due to illness or injury, ensuring the business can continue to operate smoothly.
The right business insurance is not only about your mortgage payments, but also tied up with the future of your company so it’s better to consider it in the wider context and always take advice.
At the end of the day, insurance makes sense.
As we said at the start of this article, your mortgage is a long-term investment and needs to be protected for simple, common sense, reasons. If the worst happens it will be there to make sure you can make the payments.
That said, there is another aspect to remember when it comes to protecting your mortgage payments. Peace of mind. We all worry about what will happen if we fall ill, or worse, and usually keeping up the mortgage is top of the list of concerns. That pleasure in owning a home we mentioned is something you really want to hang on to. Knowing you are covered for any eventuality will go a long way towards that.