Once you've moved into your new home, it's tempting to sit back and take it easy. But wait, have you made sure you're insured against all the things that could keep you from paying your mortgage? There are many things that could go wrong and keep you from working. In this article, we'll go over each risk and tell you how important it is that you think about it. If you are in charge of a family, it's especially important to pay attention to the following five things:
What happens if interest rates go up and you can't pay back your loan each month?
What if you get made redundant
What will happen if you get sick or hurt and can't go to work?
What if you have a bad accident or get very sick and can never go back to work?
What would happen if you died and your family had to pay the mortgage?
All of these are questions that people who just bought their own home need to ask and find answers to. The good news is that insurance companies have it covered, and there are policies that can give you peace of mind for all of these things.
Concerning rising interest rates, it would be bad if you couldn't make your payments because you couldn't afford them. However, there are mortgages that can help protect you from this. The fixed rate mortgage gives you a rate that stays the same for a certain amount of time, no matter what the Bank of England base rate is. With a "capped" mortgage, your payments can change, but the interest rate you pay will be capped at an agreed-upon rate. With a capped mortgage, you are protected for an average of 3 to 5 years. After that, it goes back to the standard variable rate, just like a fixed-rate mortgage.
Fixed-rate mortgages make up 55% of all new loans, so they are by far the most popular type. The capped mortgage is less popular because it still has some risk and can be more expensive at the start, which turns away a lot of potential customers. At the end of the protected period, you can choose to switch to a different mortgage company without having to pay any fees. As the end of the protected period gets closer, it's a good idea to keep an eye on the deals that are out there because there are likely to be better ones. Because the market is so competitive, there are always new offers, and most of them are aimed at getting people to re-mortgage. Ask a mortgage broker to find out what else is available, since they have the most up-to-date information. You don't have to make a promise to anyone or anything.
You need Mortgage Payment Protection Insurance if you want to protect yourself against the possibility of losing your job. But it's important to know that this kind of insurance is meant to help people who are laid off, not those who quit or are fired. On the Internet, we found estimates of about GBP2.45 per GBP100 of monthly mortgage payment. After you stop working, the insurance will start paying after 30 days and keep doing so for up to 12 months. You can buy this insurance from your mortgage lender, but we don't think it's a good idea because they always charge more than their online competitors.
You also have the option of paying for your mortgage payments if you are sick and can't work. But you should check with your employer first to see if they have a plan for paying you while you are sick. Some companies will pay their workers full wages for six months if they get sick or hurt. Even in this case, it's still a good idea to get insurance because you could be out of work for more than six months. If you only got statutory sickness benefits, it would be hard to pay your mortgage. This type of insurance also costs GBP2.45 per GBP100 of your monthly mortgage payment, but you can get it for GBP3.95 per month if you bundle it with unemployment insurance, which is less than if you bought the two separately. Both will cover you for up to a year, so you need to think about what would happen if a serious accident or illness made you unable to work for good.
The insurance industry says that a serious illness or accident forces 1 in 5 men and 1 in 6 women to quit their jobs for good before they reach retirement age. Think about it: if you're 45 and have a heart attack, you're probably not going to go back to work. If you have a family to take care of, this could be very bad.
In this case, you would need Critical illness insurance. If you get sick and can't work again, it will pay off your mortgage in full. Look for "total and permanent disability" coverage. This is an important part of the policy because it covers the possibility that you won't be able to work again because of an accident.
With Critical Illness Insurance, there are a few things to watch out for. For example, if you have a mortgage that you pay off over time, you need "decreasing cover." This is done so that the value of the payment goes down at the same rate as the value of your mortgage. It is also less expensive than the other option, which is "level cover." If you have an interest-only mortgage, you need this because the amount you still owe will stay the same.
Make sure you know everything about the insurance you buy, because sometimes you won't be able to make a claim. For instance, Critical Illness Insurance requires you to live for a certain amount of time after an accident or a critical illness diagnosis, usually 28 days but sometimes only 14 days. If you die before that time, your policy cannot be used.
You need mortgage life insurance if you have a chance of dying in the next 28 days. As a condition of giving you a mortgage, many lenders will ask you to set up mortgage life insurance. You don't have to buy it through the lender, though. In fact, if you don't, it will be much cheaper. Also, if you live alone and don't have to take care of a family, you might not need this kind of insurance because the lender will sell the house to get the money for the unpaid mortgage.
Mortgage The most common type of mortgage protection is life insurance. Like critical illness insurance, you can choose between "decreasing cover" and "level cover" depending on whether you have a mortgage that you pay back or one that you only pay interest on.
Buying all these insurance policies to protect your mortgage will cost money, but there are a few ways to get the most for your money. First of all, you can save about 20% if you buy accident, illness, and unemployment insurance together instead of buying them separately. This type of insurance may be called "unemployment and disability" cover by some insurance companies. When you buy critical illness insurance and mortgage life insurance together, you save money. On average, you'll save 20 to 25 percent.
Don't forget that shopping around is the most obvious way to save money. Your lender will give you quotes on these insurances and may even make you think you have to buy them from them, but you can buy them from any company you want. So it should have been the cheapest! Go online to find the best deals, or even better, call a life insurance broker who specialises in finding the best deals and ask them to do it for you. They can do all the work for you, and if you aren't happy with the results, you don't have to buy from them. The fierce competition on the Internet, especially for insurance, gives them a price advantage. Brokers can get you better deals by cutting their commission and giving you a discount on top of that. Use any of the following search terms to find affordable options: "cheap life insurance," "life insurance," "life insurance quotes," or "Mortgage Protection Insurance."
When you work with a broker, you also have access to all of their expert advice. Will you know what it means if you can choose between a "Guaranteed Premium" and a "Reviewable Premium" for your critical illness insurance? Even so, which one is the best? When that happens, a life insurance agent is worth more than gold. So we suggest you pick up the phone and talk to an expert in person. It won't take long, and you'll be sure to get it right the first time.
In the end, peace of mind costs something, but it doesn't have to be a lot.
