Why it's important to immediately get protection when you take out your mortgage

Why it's important to immediately get protection when you take out your mortgage

While the majority of homeowners and prospective homebuyers in the UK will use a mortgage to buy their home, few consider what would happen if they were suddenly unable to make their repayments.

Ask yourself: if you were to pass away, could your family afford to stay in your home? If your doctor medically signed you off work for an extended period, could you still afford to pay your mortgage and bills? If your partner passed away, could you afford childcare for your children while you’re at work?

If the answer to any of these questions is “no”, you should seriously consider looking at the protection options available to you. This kind of cover can help safeguard your home for your family if the worst were to happen.

Here’s why you should always consider protection when you take out your mortgage.

Protection is important for people of all ages

Protection options, particularly life insurance, have a reputation of being exclusively for older people. But, with the number of younger people holding mortgages, cover should actually be a consideration for anyone of any age.

In a study of 2,000 millennials, Legal & General found that while 55% of their research group held a mortgage, only 26% of all millennials had life insurance.

Across the population of millennials in the UK, that means there are 1.5 million at-risk individuals who hold a joint mortgage without any protection in place.

Depending on the cover you take out, you or your family can use a protection payout directly towards your mortgage repayments. If you’re the main source of income for your household, protection should be a high priority for you, no matter how old you are.

Younger people overestimate the cost of protection

Another factor that often puts people off protection cover is the idea that it’s too expensive, or that there are other bills that are more important.

In Legal & General’s study, they asked millennials to estimate the monthly cost of a life insurance policy for a 30-year-old non-smoker with a cash sum of £100,000, with cover for 30 years. 

The respondents overestimated the cost by nearly three times, with a median guess of £23 compared to the actual average cost of just £7.27 per month.

From this perspective, life insurance is another small monthly expenditure that could keep your family from a difficult financial situation without you.

Essentially, if you’re young and healthy, giving you and your family peace of mind is no more expensive than a Netflix subscription.

Protection options if you're unable to work

Life insurance is crucial for protecting your family in case you unexpectedly pass away. However, you should also look at other protection options available in case you become unable to work.

You may think you’ll be able to rely on statutory sick pay (SSP) if you become too ill to work.

SSP is the government-set amount for how much you will be paid by your employer in the event that you’re too sick to perform your job role. You can claim SSP for up to 28 weeks, and you’ll receive £96.35 per week.

For many families, this is not enough to pay bills for heating or food, let alone mortgage repayments. And, if you’re self-employed, you won’t have access to it at all.

This is why it’s so important to have dedicated protection cover if something were to stop you from being able to work.

Income protection insurance

One option you could consider is income protection. If you become unable to work, this type of cover replaces part of your income, giving you regular payments until you retire or are able to return to work.

Much like life insurance, the monthly cost of income protection insurance depends on factors such as your age, job, and health. There are also other variables that can impact the cost, such as how long the waiting period is on your policy before the insurer will start paying out to you.

Having income protection insurance can help boost your income, making it more likely you’ll be able to pay your bills and make your mortgage repayments.

Critical illness cover

Alternatively, you could consider critical illness cover. This type of protection offers you a lump sum payment if you become ill with a serious condition such as stroke, heart attack, or some forms of cancer.

Critical illness cover gives you a one-off, tax-free payment, rather than regular income. This makes it ideal if your condition makes it unlikely that you’ll return to work.

You’re free to do what you want with your lump sum, meaning you can use it towards your mortgage if you choose. This money could ensure that you’re able to stay in your home, even if you’re unable to work.

We can help you find the right protection

It can be tricky to know exactly which kind of protection you need, as the different types offer varying benefits that depend on your personal circumstances.

If you’d like help finding the right cover to safeguard your family and your home, please do contact us. At NM Money, our team of experienced advisers can recommend a range of protection options to suit you.

Request a callback or call us on 03300 583 859 to get in touch.

Please note: Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. This article is for information only. Please do not act based on anything you might read in this article.