Your mortgage is likely to be the biggest expense you will face in life, but what happens if you can no longer pay it? Here are the types of insurance that can help you pay your mortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
There are four types of insurance you should consider when taking out a mortgage:
Buildings insurance: To cover the rebuild costs if something happens to your home.
Life insurance: To cover the cost of paying off your mortgage, if you die before it is paid off.
Critical illness cover: To help cover the cost of paying off your mortgage if you get diagnosed with a life changing condition.
Income protection: To help cover your mortgage payments each month if you are unable to work due to an accident, sickness or redundancy.
This type of insurance is usually compulsory if you have a mortgage, and could save you a fortune if something damages your home, like a fire or flood.
Without building insurance, you would need to foot the bill of the rebuild of your home, and pay your mortgage at the same time.
A life insurance policy could pay off your mortgage if you die during the term of the policy. There are two types you could consider:
Level term life insurance: This would pay out an amount chosen by you, if you die during the term of the policy.
Decreasing term life insurance: This costs less than a level term policy because the payout reduces over time. You could set up this type of policy to reduce its payout at the same rate as your mortgage balance each month.
This type of insurance pays out a lump sum if you get diagnosed with a serious condition, like cancer or if you suffer a stroke.
Each policy has a list of conditions it covers, and a list of exclusions, so check before you buy.
There are three types of critical illness cover:
Increasing cover: The payout amount and premiums rise with the rate of inflation each year.
Level cover: The payout and premiums stay the same throughout the policy.
Decreasing cover: Premiums are usually lower compared to level cover, but the payout reduces each month. You can use this to follow your mortgage as it is repaid.
Some insurers let you add critical illness cover to a life insurance policy when you apply.
You do not usually get a better deal if you buy the two together, so shop around for both to find the best cover for the cheapest price.
If you become ill, have an accident or even become redundant, an income protection policy could pay you an income until you can work again.
These policies can cover you up to a set percentage of your income, e.g. 65%, or up to a set monthly amount, e.g. £2,000.
You could find a policy that lasts for just a year, or up to your retirement date. The longer the policy, the more expensive it is.
When you take out a mortgage, your lender may offer you a mortgage payment protection insurance policy, also known as MPPI.
This is the same as a standard income protection policy, so instead of accepting the policy your lender offers you, compare as many policies as possible to get the best price.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs by comparing the best rates available.