The right insurance
When considering a mortgage, your independent mortgage broker will no doubt talk to you about a variety of insurance policies, but why are they talking about them and why do you need them?
Choosing an insurance plan
There are a number of different types of insurance plans that should be considered in relation to securing your mortgage. Probably the most common one is a decreasing mortgage life assurance term cover, with or without critical illness cover. This type of insurance usually mirrors the mortgage debt and term and would be payable in the form of a lump sum which is made in the event of death or diagnosis of a critical illness. We often work with clients to consider a variety of different personalisation options, the most common one being waiver of premium. Payment is most commonly made monthly or annually.
Another popular choice is income, although this is not as common as the above. The aim of the plan is to pay a monthly income in the event of injury or illness and there are many opportunities to tailor to your individual needs.
Under an income protection plan, a payment would be made to you if you were unable to work because of disability caused by sickness or accident. The benefit is paid, basically, as compensation for loss of earnings. Benefit will normally start at the end of an initial waiting period, which you can stipulate when setting up the policy and normally is 4, 13, 26 or 52 weeks long. The payments will be made until you either return to work, die or the policy term expires. The policy term is normally linked to your expected retirement age. All income protection policies stipulate a maximum income benefit limit. Typically, this is in the region of 50% - 60% of your average monthly earnings in the year prior to disablement.
There are of course additional types of insurance policies that you could consider such as unemployment cover or accident, sickness and unemployment cover. The objective is to provide insurance cover for your mortgage repayments and associated costs in the event of being unable to work through unemployment, accident or sickness. These plans usually have a waiting period of just 30 days and limit the amount of cover to the mortgage payments and some associated costs. This can of course offer substantial peace of mind in the event of a prolonged period of illness.
Buildings insurance is compulsory with the majority of lenders when you take out a mortgage on a property. However, contents insurance is not a requirement but we would highly recommend it to all clients. This way you can insure yourself for lots of eventualities including fire, smoke or explosion damage. Malicious damage, theft or vandalism and can include new for old replacement, accidental damage, personal possession cover, subsidence – the list goes on and on!
In summary, when considering any of the above it is very important to discuss with an adviser who would advise you on what products would be suitable for your own individual needs.
As independent mortgage brokers, ESPC Mortgages can help will all aspects of understanding your budget, applying for a mortgage and dealing with the relevant insurance requirements. Pop in for a no obligation chat with Paul or one of the team at our Edinburgh Showroom or give them a call on 0131 253 2920.
The information contained in this article is provided in good faith. Whilst every care has been taken in the preparation of the information, no responsibility is accepted for any errors which, despite our precautions, it may contain.
The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£250 for first-time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.
Where reference is made to Independent and/or Individual advice, this will be provided by ESPC Mortgages which is a trading style of ESPC (UK) Ltd. ESPC (UK) Ltd is a wholly owned subsidiary of Edinburgh Solicitors Property Centre Limited and is an Appointed Representative of Lyncombe Consultants Limited which is Authorised and Regulated by the Financial Conduct Authority.