Chris Dunne, proposition manager, Scottish Widows, considers the protection needs for homeowners with new or existing mortgages
Financial planning, where a mortgage is involved, should ensure clients have sufficient and the right kind of protection in place for their needs. This is equally important for both new mortgages being arranged and for existing ones in place.
Our homes are usually one of our two largest assets – in most cases a pension being the other. A mortgage will often be the biggest financial debt we take on as individuals and it is important that should death or serious ill-health occur, a client and his/her family are not at risk of losing their family home.
Putting in place the right cover can mean people are able to focus on their health and wellbeing rather than worrying about whether they will have a roof over their heads.
There are two types of protection cover we believe should be considered when financial planning for mortgage protection, life and critical illness.
Life cover
Putting in place life cover for their mortgage debt can give homeowners, particularly those with families, peace of mind. The payout will allow those they leave behind to settle the mortgage, and have the security of their home about them, while they deal with the impact of bereavement.
Protection of this nature can be set up in number of ways, depending on the client’s individual needs. Considerations will include whether the cover is
- for the length of the mortgage or a more extended period
- purely to protect the amount of the mortgage or if the client wants to have cover beyond this to, for example, also provide a financial buffer for their partner/family.
- reducing over time as the amount of the mortgage debt becomes less.
Critical illness
Critical illness cover can provide a significant boost to family finances at a time of emotional and financial stress. These policies are designed to pay out a lump sum, or monthly payments, should the individual be diagnosed with a range of illnesses. And contrary to insurance myth, the majority of claims are paid out on.
Advances in medical science mean more and more people are surviving critical illnesses but when an individual becomes ill, it can mean they are unable to work for indeterminable periods of time and they may also require ongoing specialist help. If people do return to work, it can be at reduced hours. This can have a serious impact on household finances, not least the ability to make mortgage repayments.
Hence, having cover to protect against the financial consequences of these events can be invaluable.
Flexibility is key and cover should enable an individual to choose the type of protection that best suits their needs. This can be life, critical illness or a policy combining both, and cover that is level term or makes payments that rise with inflation. It should also include the option to choose payment as a lump sum or as a monthly family income benefit. This way clients can choose, for example, to pay off the mortgage with a lump sum, or select a monthly payment to help meet their monthly expenditures and financial commitments.
More than financial stability
It’s also not just about meeting financial needs in respect of mortgage payments. Having additional support from professionals able to give advice and emotional support to individuals and their families from day one, is fundamental in our eyes.
As such, I would suggest any financial plan should have a financial back-up including life and critical illness cover, and also include professional support services, so that should an untoward event happen, clients have the right financial protection and assistance when they need it most.
