Purchasing property or your new home is one of the most significant financial commitments a person can make. For most people, buying a property requires them to pay a deposit and obtain a mortgage, which is a long-term financial obligation often spanning up to 35 years.
Whilst securing a mortgage is a crucial step in homeownership, it also comes with financial risks that can impact an individual’s ability to meet their repayment commitments. This is where insurance can step in to play a vital role.
Given the uncertainties of life, it is essential to consider how mortgage repayments will be managed in the event of unexpected financial difficulties such as long-term or critical illness, job loss, or even death. This is where Personal Protection Insurance becomes crucial.
What is Personal Protection Insurance?
Personal Protection Insurance is a term used to include various types of policies designed to provide financial security for individuals and their families in case of unforeseen circumstances. When taking out a mortgage, lenders may recommend or require specific protection policies to ensure that repayments can continue, even if the borrower faces financial hardship.
There are several key types of personal protection insurance relevant to mortgage holders that we would encourage borrowers to consider. They include:
- Life Insurance – Pays out a lump sum to beneficiaries if the policyholder passes away, ensuring that the mortgage can be repaid and the family can remain in their home.
- Critical Illness Cover – Provides a lump sum if the policyholder is diagnosed with a serious illness, helping to cover mortgage payments and other living expenses.
- Income Protection Insurance – Replaces a portion of the policyholder’s income if they are unable to work due to illness or injury, ensuring they can continue meeting mortgage obligations.
Each of these policies serves a specific purpose. Depending on individual circumstances, one or a combination of these policies may be suitable.
Why is Personal Protection Insurance Important When Getting a Mortgage?
Personal Protection Insurance is an essential consideration for anyone taking out a mortgage. Whilst not legally required, many borrowers take out policies to cover them for peace of mind. Some reasons why you might consider personal protection insurance include:
To Ensure Mortgage Repayments Are Covered
One of the most important reasons for taking out personal protection insurance is to ensure that mortgage repayments continue to be met, even if the borrower encounters financial hardship. Mortgages are long-term commitments, and without an adequate safety net, a borrower’s ability to keep up with payments could be compromised due to long-term illness, injury, or unemployment. Protection insurance is there to protect borrowers, preventing the risk of defaulting on mortgage payments which could lead to property repossession.
It Provides Financial Security for Loved Ones
For those with dependents, life insurance is particularly important. If a mortgage holder passes away unexpectedly, their family could be left with significant financial strain, especially if they rely on the deceased’s income. A life insurance policy ensures that a lump sum is paid to the beneficiaries, allowing them to pay off the mortgage or continue making monthly payments during a difficult time.
Personal Protection Insurance Reduces the Risk of Repossession
Should a borrower be unable to meet their mortgage payments due to job loss, illness, or injury, the lender may take legal action leading to repossession of the property. Income Protection Insurance offers financial assistance to prevent this situation, providing peace of mind that a temporary financial setback will not result in losing your home.
It Helps To Maintain Lifestyle and Living Expenses
Critical Illness Cover and Income Protection Insurance do more than just cover mortgage payments – they provide financial support to help with general living expenses, medical bills, and household costs in times of hardship as a result of injury, illness or death. This ensures that even in the event of a health crisis, individuals and their families can maintain their standard of living without additional financial stress.
Peace of Mind
Above all, many clients take out personal protection insurance policies because it provides peace of mind by knowing it’s in place.
Life is unpredictable, and having a safety net in place removes the burden of worrying about how mortgage payments will be made in difficult circumstances.
Choosing the Right Personal Protection Insurance
When selecting personal protection insurance, it is important to consider the following factors:
- Mortgage Amount and Term – The insurance coverage should align with the size and duration of the mortgage.
- Personal Circumstances – Health, age, occupation, and financial dependents should all be taken into account when choosing coverage.
- Policy Inclusions and Exclusions – Carefully read the terms and conditions of any policy to ensure it meets individual needs and expectations.
- Affordability – Premiums should be manageable within your budget whilst still offering adequate protection.
- Provider Reputation – Choose a reputable insurer with a strong track record of paying claims promptly and fairly.
- Seek Advice from a Professional – Navigating the personal protection insurance market can be difficult. By speaking to an expert adviser, such as the team at LDN Finance, can provide you with the knowledge and experience necessary to choose the correct policy.
Is Personal Protection Insurance Mandatory for a Mortgage?
In the UK, personal protection insurance is not legally required when taking out a mortgage. However, many lenders strongly recommend or even insist on certain types of coverage, such as life insurance, particularly for joint mortgage applicants.
While it may not be a formal requirement, financial advisers often recommend having adequate protection in place to safeguard against unforeseen circumstances, not only for financial protection, but also peace of mind.
How to get Personal Protection Insurance
If you are considering taking out a personal protection insurance policy covering life insurance, critical illness cover and income protection insurance, it’s important to speak to an adviser.
Our expert advisers at LDN Finance have direct access to insurers and underwriters who can tailor policies depending on your personal and financial needs. No matter how complex, our advisers will work with you to present viable solutions.
Protect you and your loved ones today. Get in touch with our team.