Mortgage Protection Insurance Explained in Sunderland

Why Mortgage Protection Insurance is important?

Mortgage Protection Insurance serves as a comprehensive shield, encompassing various types of coverage, designed to safeguard borrowers from potential events that may impact their ability to manage mortgage payments.

By being linked to a mortgage, this insurance offers borrowers a reassuring sense of security and peace of mind.

The Different Types of Cover Include:

1. Life Insurance in Sunderland.
2. Critical Illness Cover in Sunderland.
3. Income Protection in Sunderland.
4. Accident, Sickness, Unemployment (ASU) Cover.
5. Family Income Benefit.

Life Cover Mortgage Advice in Sunderland

In the realm of life cover, two main types prevail: “Whole of Life” and “Term Assurance.” “Whole of Life” provides a guaranteed lump sum pay-out upon the policyholder’s death, regardless of when it occurs.

On the other hand, “Term Assurance” pays out only if the policyholder passes away within a specified term of years. Within “Term Assurance,” various options exist, such as “level,” “increasing,” or “convertible.”

Presently, “Decreasing Term Assurance” is commonly utilised as mortgage protection. When connected to a repayment mortgage, the sum assured decreases in tandem with the mortgage balance over time.

Due to the reduced risk to the insurer as the policy progresses, the premiums are generally more affordable than other life cover options if the policyholder were to die within the specified term.

The sum assured in “Decreasing Term Assurance” should ideally align with the outstanding mortgage balance. By ensuring this, the policyholder’s dependents are safeguarded from inheriting a debt that they might find challenging to manage on their own.

Critical Illness Cover

Many individuals consider life cover as a means of providing for their loved ones after they’re gone, as it offers no personal benefit during their lifetime. Modern medical advancements have enabled many people in Sunderland to survive conditions that were once fatal.

Despite this, undergoing treatment and recovery from a critical illness may still impact one’s ability to meet financial obligations. As a response to this concern, Critical Illness cover has emerged in Sunderland.

Similar to Life Assurance, Critical Illness cover is taken for a specific term, and it offers different options such as level or increase. The policy is designed to pay out a lump sum and is usually taken on a decreasing term basis, in line with the reduction of the mortgage balance.

The crucial aspect is that the benefit is paid if the policyholder falls victim to one of several specified critical illnesses. Upon diagnosis of a covered critical illness, the policy pays out regardless of the long-term prognosis of the condition.

The specific illnesses covered may vary depending on the insurance provider, but typically include conditions such as cancer, heart attack, and stroke, among others. The pay-out is contingent on meeting the required severity level of the particular illness suffered.

What else do we know?

Life insurance companies operate based on pre-designated clinical definitions set by the Association of British Insurers. This means that they cannot arbitrarily decide that a person is not ill enough to receive the benefits.

If successful treatment leads to recovery from the illness, the policyholder can benefit by having their mortgage taken care of. In many cases, insurance companies offer a combined policy that includes both Life and Critical Illness cover.

This policy typically pays out on the “first event,” meaning whichever occurs first, either death or a severe illness. The policy can also be written on a single or joint life basis, depending on the specific needs and preferences of the individuals involved.

Income Protection

Income Protection cover differs from Life and Critical Illness cover in that it provides a monthly pay-out rather than a lump sum. This type of policy is designed to replace your wages in the event that you become unable to work in Sunderland due to illness or injury.

Unlike Critical Illness cover, Income Protection does not have specific restrictions on the illnesses or injuries covered; the main consideration is whether they render you unfit to work. There are limitations on the amount of coverage and the time frame for benefit payments.

Typically, you can cover approximately 55%-65% of your income, and benefits will start after a “deferred period,” which is usually equivalent to the length of time you would receive sick pay from your employer.

The benefits will continue to be paid as long as you remain unable to work or until the policy term ends, whichever comes first.

Some policies may offer a “budget” option where benefits are paid for a shorter period, usually between 2-5 years, to encourage you to return to work or make alternative arrangements if the incapacity is prolonged.

Like Life and Critical Illness Cover, Income Protection policies are underwritten based on your health and lifestyle at the time of application. These policies are typically written on a single life basis.

Accident, Sickness, Unemployment (ASU) Cover

Similar to Income Protection, these policies provide coverage in the event of unemployment. The benefits are typically linked to your mortgage and other essential costs, rather than being based solely on your wages. In case of a successful claim, the benefits are usually paid one month “in arrears.”

One distinctive feature of these policies is that they are underwritten at the time of a claim, not at the beginning. This may lead to some confusion or delays in determining whether the claim will be met.

These policies serve as a valuable safety net if you experience long-term unemployment. It’s essential to review the details of how and when any unemployment benefits will be paid out. It’s possible that you may return to work before becoming eligible for any monetary support.

Family Income Benefit

One of the less common types of “mortgage protection” policies is the Family Income Benefit policy. However, these plans can hold significant value, especially for families with young children in Sunderland. They typically cover both Life and Critical Illness and are underwritten during the application process.

Unlike traditional policies that pay out a lump sum, Family Income Benefit plans provide an annual or monthly income for the remaining term of the policy. This feature allows it to replace the income of the primary breadwinner for several years, offering substantial financial support.

The type of policy, whether level or index-linked, will depend on the individual client’s circumstances and preferences. Level policies maintain a constant pay-out throughout the term, while index-linked policies are designed to adjust with inflation, ensuring the coverage keeps pace with rising living costs.

Summary

Having adequate insurance coverage is essential for everyone, whether you’re a first time buyer in Sunderland, a buy to let landlord, or planning to remortgage in Sunderland. Exploring various insurance options can bring significant benefits.

It’s crucial to understand that having multiple types of Mortgage Protection Insurance is not an “either/or” decision. In reality, you can have more than one policy to ensure comprehensive protection.

The key factor to consider is affordability, as covering every type of Mortgage Protection Insurance may not always be feasible. As experienced mortgage advisors in Sunderland, our priority is to customise the insurance solutions that best suit your family’s needs and budget.

During a consultation, we will carefully assess your requirements and recommend the most suitable combination of coverages. In cases where you opt for multiple policies, we can often consolidate them with a single provider.

This approach helps you save on additional policy administration charges associated with individual policies, making the process more streamlined and cost-effective.

Last Edited 07/08/2023