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Why Mortgage Protection Insurance is Essential to Have in Birmingham

Importance of Having Insurance in Birmingham

Have You Got The Right Insurance? | MoneymanTV

The term “Mortgage Protection Insurance” is an umbrella term used for various types of cover. The goal of this is to protect borrowers from any unfortunate events or circumstances that would prevent them from being able to keep up their mortgage payments. When connected to a mortgage, they give a sense of security and peace of mind to borrowers.

The Different Types of Cover in Birmingham

Life Cover Mortgage

There are usually two life cover options; “Whole of Life” or “Term Assurance.” When using Whole of Life Cover, you are guaranteed to have your mortgage paid off in the event of death. Term Assurance does the same thing, but only if you die within a chosen amount of years.

Within Term Assurance, there are also some branching types of cover. These include “level,” “increasing,” or “convertible” Term Assurance. Nowadays, we mostly see people utilising “Decreasing Term Assurance.”

By linking this to a repayment mortgage, the sums assured reduce at about the same mortgage rate. The premiums on these are usually cheaper than the other types of cover. If you passed away within the term, the risk to the insurer has diminished.

At that point, the remaining sum should be more than enough to pay off the remaining mortgage balance. This type of insurance helps out the departed families, making sure they don’t have to struggle with their debts after you pass.

Critical Illness Cover

Sadly you won’t be around to see it get utilised. Nevertheless, whilst you are undergoing treatment and recovery, your finances could be affected. You’re left unable to pay off any commitments, which in turn leads to the development of Critical Illness cover.

Functioning similar to Life Assurance, Critical Illness Cover gets taken for a specific term of years. There are also other options you can choose from, such as level or increase.

The purpose of this cover is to pay out a lump sum and taken on a decreasing term—basis in line with the reduction of your mortgage balance. The key is that the benefit gets paid if you fall victim to one of several specified critical illnesses.

It will then pay out whatever the long-term prognosis of that illness. The type of illnesses covered varies for each provider. In general terms, insurers usually cover between 40 – 50 specified conditions, including cancer, heart attack, and stroke. Payouts depend on meeting the required level of seriousness of the particular situation suffered.

Income Protection Insurance

Whereas Life and Critical Illness cover pay out a lump sum, “Income Protection” pays out a monthly amount. They got designed to replace your wages in the event of you being unfit to work in Birmingham. Unlike Critical Illness cover, there are no restrictions on the illnesses or injuries covered.

The only factors being whether they make you unfit to work. There are, however, restrictions on how much you can cover and how quickly benefits would start to get paid because the insurers want you to have an incentive to return to work rather than being better off on sick.

Typically, the most you can cover would be approximately 55%-65% of your income. Benefits would begin to get paid after a “deferred period.” Usually, it equates to the length of time you would receive sick pay from your employer.

Benefits would continue to get paid for as long as you remain unfit to work. Or until the policy term ends, whichever comes first. However, to make premiums cheaper, most companies offer a “budget” option whereby benefits would get paid for a shorter period.

Usually between 2-5 years – to at least allow you to make alternative arrangements. In case it looks like you’ll get incapacitated for longer than that.

Like Life and Critical Illness Cover. These policies are underwritten based on your health and lifestyle at the time you apply. All income protection policies get written on a single life basis.

Accident, Sickness, Unemployment (ASU) Cover

Similar in many ways to Income Protection, you are covered by these policies if made unemployed. Benefits get usually linked to your mortgage and other costs (rather than necessarily your wages). It would usually be paid one month “in arrears” after a successful claim.

These policies only get underwritten at the time of a claim. Rather than at the outset, which can sometimes mean there can be some confusion/delay regarding whether demand would get met.

They are a useful safety net if you get made long-term unemployed. But be sure to check the details of how/when any unemployment benefits would get paid out. As it may be that you would have returned to work before any monies become due.

Family Income Benefit

Probably the least common of the “mortgage protection” type policies. However, these can often be valuable, particularly for those with young families in Birmingham. These plans can get taken to cover Life and Critical Illness and get underwritten on the application.

Unlike the traditional forms of policy or instead, pay out a lump sum. The covers would pay an annual or monthly income for the remainder of the term of the plan. Thus, it can replace the payment of the primary breadwinner for several years.

Dependent upon a particular client’s circumstances. Because of this would usually be written on a level or basis. Or an index-linked basis designed to keep up with inflation.

How our Mortgage Advisor in Birmingham could help

Whether you are a First Time Buyer in Birmingham, a Buy to Let Landlord, someone looking to Remortgage in Birmingham, insurance is always hugely beneficial.

Many people have different policies, and it would be wrong to think of these as an “either/or” choice. You can have more than one kind of Mortgage Protection Insurance.

In any case, affordability plays a massive part in the real world while it would be fantastic to cover every Mortgage Protection Insurance type.

A good Mortgage Advisor in Birmingham like us can tailor the type of cover to be the most suitable combination to your family’s priority and budget.

Suppose you do take more than one policy, your Mortgage & Protection Advisor in Birmingham. Typically, we would usually place all the covers with one provider. To help save you the additional policy administration charges which individual policies carry.

Date Last Edited: December 6, 2023

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