Financial protection is often something you’re prompted to think about when buying your first home. It’s an important step to take as you make a large financial commitment. However, it’s just as important to regularly review the level of protection you have. When taking out a new mortgage product, whether it’s your first mortgage, you’re moving home or simply remortgaging, it’s the ideal time to reconsider your financial protection.
A mortgage is one of the largest financial commitments many of us will make, often spanning several decades. Financial protection can help ensure you’re able to meet repayments, even if something unexpected means your income is reduced or stops. Ensuring you have the right level of protection in place for your mortgage and lifestyle can provide peace of mind.
Here are three key reasons why you should review protection when taking out a mortgage.
1. Your outgoings may have changed
Financial protection products are designed to give you peace of mind that you’ll be able to pay for essentials if something unexpected happens. As a result, it’s important to know what your outgoings are to ensure adequate protection. Over time, your outgoings may increase or decrease. If, for example, you’re moving to a larger home that means taking out a larger mortgage, you may find previous protection product no longer provides suitable cover. For first-time buyers, the addition of a mortgage to their regular outgoings may mean they need to consider financial protection for the first time.
2. Your long-term financial commitments may no longer be the same
Over time as your financial commitments change, your protection products should change to reflect this. In some cases, this will mean increasing your level of cover. However, when focusing on mortgages, it can mean decreasing cover too. As you pay off your mortgage, you may find you can reduce your life insurance policy while still benefiting from peace of mind, for example, reducing the premiums you pay too.
3. Your priories may evolve too
Over time, your priorities and concerns are likely to change too. If you’ve welcomed children since taking out a policy or want to start a family in the future, looking at more comprehensive cover can give your family additional security, for instance. This is why financial protection products should be considered alongside your lifestyle plans, including buying a home.
What type of financial protection should you choose?
When taking out a mortgage, life insurance is often considered. While important, it’s not the only protection product that can provide reassurance when you have a mortgage to pay. Here are three options you may want to consider.
- Life insurance: When you’re buying a home with a partner, life insurance is a protection product that may be recommended. It would pay out a lump sum on the death of the person or people covered. Usually, a life insurance policy will be linked to the mortgage term and size, to pay off the mortgage if you or your partner passed away. It can relieve one of the biggest outgoings the remaining partner may have, giving them space to grieve without worrying about the mortgage.
- Income protection: If you need to take an extended period off work, could you still afford to pay the mortgage? If the answer is ‘no’, it may be worth considering income protection. If you’re unable to work due to illness or an accident, this type of protection product will provide you with a regular income until you’re able to return to work, retire, or the policy term ends. It will pay a portion of your usual salary. It’s a safety net that could help ensure you’re still able to pay for the essentials, from your mortgage to grocery shopping, if something happened.
- Critical illness cover: Finally, critical illness cover pays out on the diagnosis of certain illnesses, which are defined in the policy. Rather than paying a regular income, you’d receive a lump sum. This could be used to pay off your mortgage, support day-to-day costs, or make adjustments to your home if necessary. It can give you some freedom by allowing you to reduce or remove expenses, so you to focus on recovery or adjusting.
We all think that we won’t need to make use of protection policies. However, the reality is that thousands of Brits make claims every year, providing them with some financial security when the unexpected happens. Despite the peace of mind financial protection can offer, just 15% of people would list life or health insurance as a top-three priority to protect their financial wellbeing, according to research from EY.
If you’d like to discuss financial protection and how it can provide peace of mind when paying a mortgage, please contact us. There is a range of products and providers to choose from, we’re here to help you find the right one for you.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.