Protecting you…
Taking out a mortgage is a substantial long term financial commitment and the repayments on it will remain your responsibility, whatever your situation, until the mortgage is cleared. Those repayments can become a problem if you face an unpredictable event which affects your ability to pay e.g. an accident, unemployment, long term sickness or even death.
It is important to take sensible precautions to counteract the risk of losing your property in these unforeseen situations and insurance is an effective way of reducing that risk. smartlife advisers will outline a range of appropriate types of insurance to help protect you in the event of the following unpredictable situations:
- Death
- Long term illness
- Critical Illness
- Redundancy
The types of insurance cover that can be arranged in connection with your mortgage are:
- Term assurance
This is the simplest form of life assurance. The insured person or persons are covered against death (and critical illness if this option has been included) within a fixed period (term) subject to the payment of the premiums as they fall due (normally monthly or yearly). If an insured person dies (or contracts a critical illness if this option has been included) within the policy term, the sum assured (amount of cover selected) is paid out. If all insured persons survive the term, the insurance policy ends with nothing being paid to the policyholders.
- Critical Illness cover
This cover will provide a lump sum in the event of a specified serious illness e.g. cancer, stroke, heart attack, during the term of the plan. As with term assurance, there is no inherent value in the plan so if no claim is made, no benefit is paid out.
Critical illness cover can be set up as part of a term assurance plan (see above) or on a standalone plan. The lump sum benefit is paid tax free when an insured party suffers one of the policies listed critical illnesses, subject to all premiums being up to date.
- Income Protection
This insurance is designed to help replace an income that is lost as a result of accident or sickness. It will pay you a monthly income in the event of you being unable to work and can help pay mortgage repayments and any other household bills. The tax free income is limited to a maximum of 65% of your normal monthly income and once claimed will continue to be paid until you return to work or the policy end date (normally mortgage end date or retirement).
- Mortgage payments protection
This is insurance cover, arranged by the borrower, to protect against the inability to meet the mortgage payments, e.g. as a result of being unable to work due to illness or disability, or becoming involuntarily unemployed. On successful claim the benefit would be paid for 12 or 24 months.
This type of cover should more accurately be described as accident, sickness and redundancy insurance, as unemployment cover would not include dismissal, resignation or involuntary redundancy. The accident and sickness cover would also be subject to major restrictions such as any of self injury or any injury related to the use of alcohol or drugs.
- Note:
The Government want to encourage private provision for the repayment of mortgage interest in the event of accident, sickness or unemployment. For borrowers whose mortgages commenced on or after 02.10.1995, no State benefits would be payable in relation to mortgage interest for at least 40 weeks in the event of the borrower being made redundant or being unable to work due to accident and/ or sickness, and thereafter the potential State benefit in relation to mortgage interest would be means tested. Consequently there is no guarantee that the benefit received from the state, if any, would be adequate to meet mortgage interest payments.
