Mortgage protection insurance is a term used to encompass various types of cover designed to protect borrowers like first time buyers in Cardiff from events that could severely impact their ability to maintain mortgage payments. 

There are different variations, but when connected to a mortgage, they are all there to provide peace of mind and usually fall into the following categories: 

  • Life Insurance
  • Critical Illness Cover
  • Income Protection 
  • Family Income Benefit 

Life Insurance

As a rule, if the policyholder dies within the term, then the sum assured should be enough to pay off the outstanding mortgage balance and ensure the borrower’s dependents aren’t left with a debt they might not otherwise be able to manage.

How We Can Help You

Our protection specialists in Cardiff can run through all the different types of life cover and recommend the most suitable plan for you. 

Critical Illness Cover

Critical Illness Cover works similarly to life insurance in that it is usually taken for a specific term of years and can have different options such as level/increasing. 

It pays out a lump sum, and, like life cover, it is taken on a decreasing term basis in line with the reduction of your mortgage balance for borrowers.  

The key is that the benefit is paid if you fall victim to one of several specified critical illnesses and pays out whatever the long-term prognosis of that illness. The type of illnesses covered vary from company to company. 

That’s why this type of insurance cannot be solely price-driven and always recommended advice. 

In practice, many companies will offer life and critical illness cover as a combined policy and would usually payout on the “first event”, i.e. whatever happens first – either death or a severe illness – the payout is made. They can also be written on a single or joint life basis. 

Income Protection

Whereas life and Critical Illness Cover pay out a lump sum, income protection pays out a monthly sum designed to replace your wages if you are unfit to work. 

Unlike Critical Illness Cover, there are no restrictions on the illnesses or injuries covered, the only factor being whether they make you unfit to work. 

However, there are restrictions on how much you can cover and how quickly benefits would start to be paid. 

Like life and Critical Illness Cover, these policies are underwritten based on your health and lifestyle when you apply. All income protection policies are written on a single life basis. 

Family Income Benefit

Unlike the traditional forms of policy, the cover would pay an annual or monthly income for the remainder of the plan’s term rather than pay out a lump sum. 

Thus, it can replace the primary breadwinner’s income for several years, dependent upon a particular client’s circumstances and, because of this, would usually be written on a level or basis or an index-linked basis designed to keep up with inflation. 

Summary

There’s an adage that says you can never have too much insurance. Indeed, many people have one or more of the different types of policy, and it would be wrong to think of Mortgage Protection Insurance as just an “either/or” choice. 

However, affordability plays a massive part in the real world, so whilst it would be fantastic to cover yourself for every potential opportunity, a good advisor will sit down with you and tailor the type of cover to be the most suitable combination to your family’s priority and budget. 

Date Last Edited: December 6, 2023