Whilst it’s easy to think, “it won’t happen to me”, with the current Statutory Sick Pay at £94.25 per week, if you’re taking out a mortgage, it’s really important to ask yourself whether you could afford your monthly bills and committed expenditure if you weren’t able to work due to ill health. If you’d struggle, it may be worth considering a protection policy.
Different types of protection policies
There are a few types of protection products, all of which do different things, but the most commonly referred to policy types are:
Income Protection Insurance
These policies are more specific and generally cover a regular payment that you’d need to make, for example your mortgage. They can usually be claimed upon if you lose your job, for instance if you’re made redundant, or if you’re not able to work due to accident or illness.
Critical Illness Cover
This is a slightly different type of product, designed to pay a tax-free lump sum in the event that you’re diagnosed with a serious illness covered under your policy. You could use the lump sum to either service the payments on your mortgage, or pay it off completely, depending on the amount you receive in the event of a claim.
Payment Protection Insurance
These policies are more specific and generally cover a particular regular payment that you would need to make, for example your mortgage. These sorts of policies can usually be claimed upon if you lose your job, for example if you’re made redundant, as well as if you’re not able to work due to accident or illness.
What if you can’t pay your mortgage?
The reason it’s so important to consider how you’d pay your mortgage in the event that you couldn’t work or lost your job is because getting behind with your mortgage payments (or falling into arrears, as it’s otherwise known) can mean that your credit rating is severely impaired.
If that happens, it could mean that you would find it difficult to get accepted for credit or have challenges applying for a mortgage in the future. Worst case scenario, if you were to fall into arrears with your mortgage and weren’t able to come to an arrangement with your lender about how to repay what you owe, then you could find that your property is repossessed. If that were to happen, not only would you then lose your home, but you’d also lose also any capital you have in the property.
How much are protection policies?
Costs for protection policies vary depending on your age, what you do for a living, and your health profile. For example, how much you weigh, if you’re a smoker and if you have any pre-existing illnesses or conditions, as well as the level of cover you would like to put in place. Whilst it may sound daunting at first, Mortgage Advice Bureau have a specialist protection team who are here to understand your needs, talk you through the products which are available and help you to get the right cover in place.