Life assurance policies – the importance of protecting your mortgage payments and loved ones

If clients have a mortgage and a family, the importance of protecting mortgage payments with Life or Critical Illness Cover and additional protection for children, is paramount. It could mean the difference between a family keeping their home – or not – in the event they are unable to meet future mortgage payments due to illness, injury, or death.  

What is life assurance?

Individual life assurance is a policy taken out against an individual for a set amount, due to be paid out on the death of the policy holder. Monthly premiums are paid to a life insurance provider and are dependent on several mitigating factors including the health and age of the individual. This is to ensure the policy holder isn’t going to pass away immediately after the policy is taken out.

If the overall health of the holder is deemed poor, the premiums paid can be extremely high as a guarantee for the provider. In cases where an individual’s health is deemed too poor, providers will refuse to grant a policy altogether.

There’s no flexibility with life cover, so it’s important to choose a term that’s either the same length as the mortgage, or one that will cover clients until the age of retirement.

Why choose life assurance?

Cover of this level is beneficial in protecting the term of a mortgage and meeting mortgage payments. Should clients pass away during the term of their mortgage, their spouse and children will receive a lump-sum payment to allow them to pay the majority or remainder of the mortgage balance.

This is especially important in cases where the client is the sole fee-earner. Life policies also have the option to pay out in incremental payments as opposed to receiving a full lump sum.

What is critical illness cover (CIC)?

Critical illness cover is a policy designed to pay out should the holder suffer a specific critical illness. The main critical illnesses, known as ‘core conditions’, include cancer, heart attacks, organ transplants, kidney failure, and sclerosis (a condition affecting the brain and spinal cord). CIC can also include total permanent disability.

The policy will typically pay out if the individual survives for 28 days following diagnosis of any of the specified critical illnesses. However, it’s worth noting that different providers will have different criteria for what they deem to be ‘critical’ illnesses.

Types of CIC

Some employers may offer CIC to employees, which could be a pay-out of a certain amount of the policy holder’s salary to their spouse in the event of a critical illness. However, an individual policy is often more beneficial as the holder can specify the amount of cover required. This is especially useful when you know the amount remaining on the mortgage term.

Premiums are based on the amount of cover required. The higher the mortgage, the bigger the premiums will be. As with life cover, critical illness requirements are based on the health of the individual at the time of taking out the policy. If the individual is a smoker, for example, their increased risk of cancer would in turn increase the premium payments.

Life and CIC can be used in conjunction as a joint policy. This provides the holder with more comprehensive cover and peace of mind that their loved ones will be able to keep up with mortgage payments in the event of their death.

Capped benefit policies

Providers may only pay a certain amount of the mortgage if clients have chosen a policy with a capped benefit. This means the amount clients can claim is limited to a specific amount, regardless of the amount of their mortgage.

Capped benefit policies can seem more affordable than policies with unlimited benefits, but they may not provide as much cover as needed. It’s important to review the terms and conditions of the policy carefully to ensure you have the right level of cover for clients’ individual circumstances.

It’s also worth noting that some policies may have additional limitations or exclusions that can impact the amount of coverage received. For example, some policies may not cover pre-existing medical conditions or may exclude certain types of illnesses or injuries.

Additional protections

There are a few additional protections clients can take out alongside life assurance and CIC to ensure they’ll always be able to meet mortgage payments. One option is income protection insurance, which provides a regular income if they’re unable to work due to an illness or injury. This substitute income can be used to help pay the mortgage and other bills while they’re unable to work and claim salary.

Another option is mortgage payment protection insurance, which can help cover mortgage payments if they’re unable to work due to an illness, injury, or job loss. This insurance provides regular payments for a set period, typically up to two years.

It’s important to compare policy options and choose the protections that are right for your clients and their family. It’s also important to review cover regularly to ensure it continues to meet their needs and those of their loved ones.

In conclusion

Ensuring financial commitments to a mortgage are covered in the event of being unable to make payments due to illness or death is crucial, especially when clients have a family. The levels of cover will differ depending on the policies taken out. Life cover and CIC premiums, for example, are both dependant on the health of the policy holder, however the cost fluctuates based on the types of policy.

Seeking professional guidance from an independent financial advisor can help ensure you have the right level of cover in place to meet clients’ needs and those of their family whatever the future holds.

This article was submitted to be published by CTT Group as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.