Why You Need the Right Insurance When Taking Out a Mortgage

24 May 2022

When you begin to consider taking out a mortgage, your independent mortgage adviser will talk to you about insurance policies, but what are they, and why do you need them?

Paul Demarco, independent mortgage adviser, has shared his insights on why you require insurance when considering a mortgage, and what the most common options are.

What is Life Assurance Cover?

The most common insurance type is a decreasing mortgage life insurance term cover, with optional critical illness cover. This type of insurance usually mirrors the mortgage debt and term, it is payable in the form of a lump sum, made in the event of death or diagnosis of critical illness.

What is an Income Protection Plan? 

The aim of an income protection plan is to pay a monthly income in the event of injury or illness. With this plan, payments are made to you if you become unable to work due to illness or accident. The benefit is paid as compensation for loss of earnings, and would usually start at the end of an initial waiting period which you can stipulate (normally 4, 13, 26, or 52 weeks). The payments will be made until you either return to work, die or the policy term expires. Usually, the policy is linked to your expected retirement age. 

All income protection policies stipulate a maximum income benefit limit, usually in the region of 50-60% of your average monthly earnings in the year prior to your disablement.

What other types of insurance are available?

Other types of insurance policies you can consider include unemployment cover or accident, sickness and unemployment cover. The objective is to provide cover for your mortgage repayments and associated costs in the event of being unable to work through unemployment, accident or illness.

These plans tend to have a waiting period of 30 days and limit the amount of cover to the mortgage payments and some associated costs.

Do I require buildings insurance?

Buildings insurance is compulsory with most lenders when you take out a mortgage. Contents insurance is not a requirement, but is highly recommended by us, to insure yourself for lots of eventualities including fire, smoke or explosion damage, malicious damage, theft or vandalism. It can include new or old replacement, accidental damage, personal possession cover, subsidence, etc. 

Overall, when you are considering any insurance policies, it is important to discuss with an adviser who knows best what will accommodate your personal needs.