Protection & Insurances – what types are there and what do they cover?



So, you’ve found your property, your offer has been accepted for your perfect home and you’ve started the mortgage application. Now its time to think about protecting you and your property.


These are the main different types of insurances;

Protecting You


Life Insurance


This is an insurance policy that will pay out a ‘one off’ a lump sum amount (usually matching your remaining mortgage) in the event of you and / or your partner dying.

Life insurance can cost as little as £5 a month, but this depends entirely on your personal circumstances;

  • If you are older, the policy will likely be more expensive

  • If you have an pre-existing medical issues, these are likely to incur a slightly higher premium or exclusion.

  • A smoker is likely to have an increase in premium

A mortgage decreasing term assurance will likely cover a repayment mortgage (where you own the property at the end of the mortgage) and a mortgage level term assurance is likely to cover an interest only mortgage (whereby you still owe the mortgaged amount at the end of the term).

Policies are available with Reviewable and Guaranteed premiums however most clients seem to prefer Guaranteed premiums as you know how much the premiums will be for the length of the policy which is usually preferred.

Having life insurance will mean that in the event that one of you passes away the family will be able to pay off the mortgage helping them and the family to stay in the family home.




Critical Illness Cover (CIC)


This is an insurance policy that will pay out a ‘one off’ a lump sum amount in the event of you and / or your partner suffering from a critical illness.

The term Critical Illness and the conditions that they cover will vary from insurer to insurer but usually there are approx. 50 conditions covering Cancer, Heart Attack, Stroke, Multiple Sclerosis & many others. These can also include Total and Permanent Disability which would encompass a lot of mobility-based diseases / causes of accidents.

Each condition will have a policy definition and providing that the illness falls within that definition the policy will pay out.

You can use the insurance pay-out to pay off all or part of your existing mortgage, or to potentially make alterations to your home to help you live day to day with your illness.


The policy conditions will vary greatly from policy to policy to its good to understand the minimum policy conditions and how each insurer will pay. A good broker will be able to navigate your way through these.



Income Protection Insurance


This is unlike the first two types of cover as it doesn’t pay out a one off lump sum of money, it pays out a monthly benefit designed to replace the majority of your income should you be unable to work due to sickness / injury. The policy starts after a waiting period that you can select based on your personal circumstances, for example, if you had 3 months sick pay from work you would want your policy to start after that.

It covers you for any condition that you’re signed off work sick for until you’re ready to return to work. You can set the payout period up until you’re ready to retire so this policy, should you become ill/sick, could pay you out enough to pay your mortgage and bills until you retire.


Income protection would pay you a monthly tax-free benefit to cover the loss of your earnings to keep you on top of mortgage repayments and other costs. This would help you recover without worrying about money constantly.

If you’re self-employed or a freelancer, then income protection is especially important as you could have no way of paying for your mortgage if you can’t work.

If you are employed you will likely be entitled to statutory sick pay, where you will be paid by your employer for up to 28 weeks.




Family & Personal Income Plan (FPIP)


A FPIP plan is made up of a monthly benefit which starts in the event of death, terminal illness or a critical illness (if chosen).

This can replace a lost income meaning that the partner / family can still help with monthly outgoings and everyday living expenses even after you’ve passed away.







Protecting your Home


Buildings Insurance


Buildings insurance isn’t a legal requirement to have, however all lenders will have it as a mortgage condition and want you to have it before you exchange contracts so should anything happen to the property you’re buying then their interest is also covered.

Buildings insurance will protect you from the cost of rebuilding or repairing your home if it got damaged by something like a fire or flood.

This would cover the following (depending on policy):

  • The structure of the building

  • Permanent fixtures such as kitchens and bathrooms

  • Sheds, Garages, and other outside buildings

You would still need to pay buildings insurance if you were buying a leasehold house or flat, but this may be arranged by the freeholder or management company as they’ll want a policy that covers all of the units within that development.




Contents Insurance


This is a good thing to have for when your getting close to moving day as it protects your belongings.

If you needed to replace things such as a TV or washing machine due to damages, you would need contents insurance to cover you. Getting contents and buildings insurance together may be cheaper, but you can buy them separately.




Conclusion


Despite popular theory the only insurance that you have to have is buildings insurance as it’s a condition of the mortgage.

The conversation around protection may be uncomfortable as no-one wants to think about terrible outcomes that could potentially leave you, your partner or your family homeless and helpless - an uncomfortable chat could be the difference between being able to cope and get through the tough times with financial burdens hanging over you head.


The thought of getting insurance might seem scary because of what it implies, but its actually all about safety and security for you and your loved ones.

A good broker will hand hold through all of the options and guide you through what’s best for you whilst working with the budget that you’ve set.

If you are looking to apply for a mortgage or if you already have, its time to start sorting out your insurance and ensure you are prepared for anything that could come your way!

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