If you’re applying for a mortgage or about to remortgage, it’s advisable to look into financial protection at the same time. Here’s why it’s important to find the right cover for you early on…
If you’re about to apply for a new mortgage, your thoughts will understandably be focused on whether you can afford your dream home and the paperwork you need to organise. However, when you do apply for a mortgage, it’s also important to think about taking out financial protection at the same time, so that you’re covered from exchange of contracts or at least by completion.
Financial protection covers you in the event of death, serious illness, or a loss of income. There are various types of protection that you can read about in our free protection guide.
In essence, there is income protection, which pays out a regular tax-free monthly sum if you can’t work due to illness, critical illness cover, which pays out a tax-free one-off sum if you are diagnosed with a serious illness and life cover. The latter is paid out to your loved ones if you die.
You might want to consider one or several forms of cover. A good protection adviser can make a detailed recommendation for you based on what type of cover would suit your personal situation and budget.
The key point is to consider protection when you apply for your mortgage and ask your broker to look into it for you sooner rather than later. ‘It’s very important to submit an application around the same time as applying for the mortgage, as this gives the insurer time to decide whether or not they can offer cover, while your lender assesses your mortgage application,’ says MB Associates’ mortgage and protection adviser, Anthony Blaine. ‘If this is delayed, the protection may not be able to start on time for exchange of contracts for a purchase, or completion for a remortgage. Should something happen in the meantime such as you being diagnosed with a critical illness, or not being able to work due to accident or sickness, then you won’t be covered.’
Don’t delay cover
Although you can take cover out at a later date, many people forget to do it or don’t get around to it after their mortgage has been completed. You’re also likely to pay more. ‘If cover is taken out later on, then the premiums could be more expensive, and you may also be declined if your health has changed in the meantime,’ says Anthony.
Some providers will even offer free life cover once your application has been submitted, meaning you’ll have some cover in place before you’re even paying for it. Legal & General includes Free Life Cover at no extra cost if you are moving home and you take out Life Insurance or Decreasing Life Insurance cover (the latter is where the policy pays out less over time, in line with your mortgage balance decreasing over time). If you die between exchange of contracts and completion of your property purchase, you’ll get free cover for a maximum of 90 days. The cover will be the amount of your chosen sum assured, the amount of your loan or £300,000 (whichever is lowest).
Best forms of cover
When considering financial protection, it’s definitely worth speaking to an experienced mortgage and protection adviser as they can offer you access to the best forms of cover. Anthony says: ‘Brokers can offer far superior levels of cover from more reputable sources, as the cover on price comparison sites is often far less comprehensive, and the assumptions made on your behalf mean that the policy is less likely to pay out on a claim. There are specific features only available through brokers, and it’s better to take advice from a professional than try to sort it out yourself, as there are more protections to the customer when taking advice from their broker.’
An experienced mortgage and protection adviser will be able to give you detailed advice, not just about your new mortgage but also about your financial status, identifying where there may be shortfalls in your situation. However, they will work with you to ensure that cover is affordable for you. ‘The advice will be based on a monthly budget to ensure the premiums don’t break the bank, are sustainable, and offer you the highest level of cover for the money,’ says Anthony.
Financial protection usually takes less time to arrange than a mortgage unless there are circumstances where the application has to be processed manually. ‘Once terms are offered by the insurer, the cover can start as soon as possible for income protection, or upon exchange of contracts or completion for a purchase or remortgage, respectively, for life and/or critical illness,’ says Anthony.
Contact us today to talk about financial protection.