Beyond the mortgage – lifestyle protection

22 August 2019

Most people with a mortgage or large loan will have taken out some form of life cover when the original loan was established. It's probably one of the most common reasons for putting protection in place and often, that's as far as it goes. However, if things went wrong, it's not only the mortgage or loan that would be at risk. A more holistic approach to protection can offer the opportunity to protect not only an individual's home, but also their lifestyle.

'Default' cover

As suggested, if you've got a mortgage or debt, it's quite likely that you have also set up a life cover policy to protect your loved ones in the event of your death. This might be for a level amount of cover until the end of the mortgage term (e.g. £400,000 till your age of 65 as an example), or the sum assured might decrease over time as the mortgage is paid down. There might be some critical illness and / or total permanent disability cover included in the policy as well, depending on what was selected at the outset.

If you haven't looked at your policy for a while, it's worth having a review of what's covered, or potentially more importantly, what's not. Your circumstances may have changed quite significantly since the start of the plan and you may find that what was adequate all those years ago doesn't quite add up to what you might need now. Make sure you don't cancel any policies without having them reviewed by a qualified adviser, but do get them reviewed.

For information, Chapters Financial does not offer mortgage advice.

'Lifestyle' protection

Protecting any debt / loan repayment is sensible and usually not that expensive, although this will depend on your personal circumstances. Protecting your lifestyle, on the other hand, can be overlooked or dismissed as unnecessary and costly.

To reference this further and as examples, AIG Life brought together some interesting statistics in a recent presentation, which might provide some pause for thought for your overall financial planning:

  • The average weekly household spend rose to £554.20 in the financial year ending 2017
  • One in five people who are off work due to incapacity will be unable to work for three months or more
  • A quarter of people say they would face 'financial ruin' if out of work for only four weeks
  • An estimated 137.3 million working days were lost due to sickness or injury in the UK in 2016
  • Only one in 10 people in the UK have some form of income protection in place
  • In a number of regions in the UK, over 50% of adults have less than £100 in savings

What should you consider?

As a first point, if you are employed, check whether your employer offers any form of income protection cover, or how long they would pay you for if you became too ill to work. Some companies are more generous than others, and it's worth bearing in mind that Statutory Sick Pay (SSP), the minimum level of support you'd get, is currently £94.25 per week for up to 28 weeks. Given the average household spend noted above, it is clear that if SSP is the only benefit to which you would be entitled in the event of illness, it's not going to go very far.

Building a holistic protection plan

With the above points in mind, it is clear that thinking 'beyond the mortgage' is prudent and these days it is possible to build a protection plan tailored to each individual's circumstances and made up of a range of different types of cover, a bit like picking dishes from a menu. Examples include term assurance, critical illness, total permanent disability, income protection and family income benefit, to name a few.

The level of cover can be selected to suit an individual's needs and budget and can provide a cost-effective way of protecting more than just the family home.

Summary

Our experience shows that each protection enquiry is different and specific to a client's needs. If you would like advice on the ways in which you can protect your family in the event of death or ill health then please contact the team at Chapters Financial, who will be able to help you further. No individual advice is provided during the course of this blog.

If you would like to receive further information regarding your own situation and circumstances, please contact the Chapters Financial team.

Vicky Fulcher Dip PFS
Director

Chapters Financial Limited

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.