Essential Financial Protection Explained

Financial protection is a vital component when obtaining a mortgage, yet worryingly overlooked.

So why do most neglect this crucial element? Well, some don’t know it exists. Whilst many have heard of Life Cover, far less have come across Income Protection or Critical/Serious Illness Cover, and these are the ‘unsung heroes’ of financial protection.

What would happen if you couldn’t work due to illness or injury? You may have some savings, or family to help you out. Realistically though, how long would those savings last without your income, and how much financial help can family actually provide when they’re juggling their own bills too?

What if the unthinkable happens and you’re no longer around to pay the mortgage or bills? How do you overcome being diagnosed with a critical illness, and what about your little ones? If they have a serious health issue, will that impact your ability to work/earn, will your hours (and, therefore, income) reduce?

It’s a lot to think about – and, granted, not the nicest of thoughts. In an ideal world, we’d have all areas covered (insured) fully…. but we don’t live in an ideal world sadly. These things do happen, and we really need to be prepared if they do. 

The Mortgage Bay firmly believes that some cover is better than none at all….as long as it’s the right type of cover.

If you have a mortgage jointly and feel the other person can cover the mortgage and bills, factor in whether both incomes were used to obtain the mortgage. If this was the case, the lender doesn’t feel the mortgage is affordable on one income - in which case Income Protection really is crucial.

Of course everyone has their own financial priorities, quite rightly. Some like to splash out on gadgets or luxuries, or insure their pets, mobiles (or washing machine!) before themselves. There is absolutely no judgement, and there is no right or wrong; it’s all about what works best for you.

Our role? To highlight any areas you may be financially ‘at risk’, factoring in any existing cover and/or workplace benefits and advise you on how best to protect any shortfalls – without any pressure. 

• Income Protection– a monthly benefit paid to you if signed off work for a period of time due to illness or injury. Designed to cover the mortgage/rent repayments and essential bills. 
• Life Cover – a lump sum payment made in the event of death, which may be used to repay a mortgage and/or leave monies to loved ones.
• Critical/Serious Illness – a lump sum payment paid to you if diagnosed with a specified condition (conditions covered are detailed from the outset and vary from Provider to Provider).
• Family Income Benefit– a benefit normally paid out monthly. This can be a death and/or a critical illness benefit. Often used to ensure the family can maintain their lifestyle in the event of the insured person’s death or diagnosis of a critical illness.

The beauty of these products is that they are not annually reviewable, like general insurance (such as home or car insurance), so your premiums won’t increase if you make a claim!

Another bonus is that most policies nowadays also tend to include GP appointments (usually virtual) within a few days of a request (saving the, often lengthy, wait for a NHS GP), second medical opinions and various wellbeing assistance.

As part of the mortgage process, we are now, as an industry, obliged to have a conversation around financial protection. The Mortgage Bay feels very strongly that this type of insurance is an absolute must for peace of mind. Michelle herself has had close family and friends affected by awful and unexpected circumstances – some in their 20’s!

It’s not just the serious illnesses which can cause significant hardship. Those working manual jobs (builders, drivers etc) can become unable to work due to a more minor accident or injury, such as a broken leg, for example, which could result in reduced (or no) income during the recovery period.

It’s an odd concept, but the ideal is that you have cover in place should the worst happen, but you don’t need to claim under it, as that means you’ve remained relatively healthy!

Not exactly an uplifting subject – but important all the same!