Secured your mortgage? Make sure you don't forget about protection

12 Jul

Life is unpredictable, and life circumstances never stay the same. We never think that anything bad will happen to us; death and illness are horrible subjects to think about, but that’s not how life is. We can have plans, hopes and dreams, but sometimes the universe throws us a curve-ball.

Ever thought, if you become unable to work, either temporarily or permanently, do you have a financial plan for yourself and your family? Would you be relying on savings if the unforeseen happened? That is why it is worth considering ‘protection’ as part of your financial planning, whatever stage of life you are at.

What is protection?

Protection is a type of insurance that pays out when bad things happen. Recent research suggests that we are more likely to consider protection products since the pandemic; COVID-19 has made the majority of us think more carefully about protecting ourselves and our families from financial difficulties and unforeseen events1.

But protection is not only for those who have taken big mortgages since many of us have families to support financially, even if we have not recently purchased a property.

The right protection product for you and your family depends on your financial situation, expenditure and goals for the future. Therefore, choosing a protection policy is an individual choice and something that needs to be discussed with an expert.

What types of protection products are available?

Depending on your requirement, you might wish to consider some of the following policies.

Life Insurance

Life insurance pays out money to your partner and/or children a lump sum if you pass away or become very ill. Few life insurances provide a monthly income for the family, while other types of policies offer a lump sum.

For those looking to protect a mortgage/debt is ‘decreasing term’ life insurance. This means the sum assured (the amount the policy will pay out) reduces over time, typically the way a repayment mortgage reduces. On the other hand, there is also ‘level term’ life insurance, where the sum assured remains the same throughout the policy period.

Life insurance could be considered by anyone who has an outstanding mortgage and/or financial dependents such as a wife and children. While paying off the mortgage payment, the lump sum amount could provide an additional cash cushion to ensure your family’s financial security

Income Protection Insurance

If you are worried about how your family would survive and take care of their daily/monthly expenses if you were unable to work due to illness or disability; Income Protection would be suitable for you; it is designed to provide a regular income if you are ill including a mental illness like severe depression.

Usually, a payout is based on a percentage of your earnings, and these payouts are tax-free. The longer the deferred period is, the lower your premiums will be. You can choose between short-term cover, which might pay income from one to two years, or even a long-term cover, which can typically run until you retire or when the policy ends. Also, there are short-term versions of these policies available, which might be a relatively cheaper way to be able to pay off certain mortgages if you were unable to work.

You can choose between different types of income protection according to your situation, such as in case your employer stops paying sick pay, also known as stepped income protection insurance, and/or insurance amount that rises in line with inflation.

Critical Illness Cover

A critical illness insurance plan pays out a lump sum amount if you are diagnosed with a serious illness named on your insurance policy. In some cases, it will pay the same amount no matter the severity of your health condition, and in other cases, the payment will be severity based.

It doesn’t cover accidents; however, illnesses that are covered include heart attack and as well as some cancers, while some policies give you the option to list specific diseases. For this instance you can name diseases that are carried in your family genetically including specific cancer types. It’s designed to help support you and your family financially while you deal with your medical treatment and only focus on your recovery without worrying about how the bills will be paid.

What to consider

Even the thought of unexpected bad events can be a very hard thing to do, but having a peace of mind knowing that your family and loved ones would be protected if anything happens to you can be a relief. Before taking out any protection insurance, you need to think about what other types of security you already have, for example, savings or investments, as well as your debts and expenses and how they might increase or decrease over time. Protection experts will be able to help you pick the best insurance for your circumstances.