Protecting your home

When it comes to most people’s priorities, few rank higher than keeping a roof over their heads. If you rent your home, or have a mortgage to pay, it’s worth asking yourself how you’d cover this cost if something went wrong.

It’s not something anyone likes to think about, but how would you cope if you or your partner became unable to work due to an illness or an accident? Could you still afford to pay your rent or mortgage? What if you passed away unexpectedly? Would your family be able to keep making repayments without you?

Protection insurance

There are a wide number of insurance policies out there which can help you protect your home. No two people are the same and the best choice for you depends on your circumstances.

Life insurance usually pays out a lump sum if you die unexpectedly. There are a variety of types of life insurance, but ‘decreasing term’ insurance is likely to be the cheapest way of providing cover for your mortgage in case you pass away. This type of policy will only pay out during a set amount of time (the ‘term’).

Income protection insurance is designed to pay out a set percentage of your salary on a monthly basis, usually tax-free, if you have an accident or become too ill to work. It is a long term form of protection and will pay out until you return to work or your retirement date.

As its name suggests, short-term income protection insurance is a short-term form of protection, which pays out an agreed sum. It can help you cover mortgage or rental payments, if you are made redundant or are too sick to work for a short period of time, usually 12 months. These policies often have exclusions, for example, they might not pay out if you take voluntary redundancy.

Other options include critical illness cover, which provides a one-off payment if you contract a specified illness. This sum could be used to pay off your outstanding mortgage or costs related to your illness such as alterations you might need to make to your home, e.g. wheelchair access.

Payment protection insurance (PPI) covers a specific debt, such as your loan or credit card repayments. The cover is for a specified period, usually 12 months, in the event of an accident, sickness or sometimes redundancy. It has a bad reputation due to having been mis-sold in the past, but can provide a useful layer of protection.

Mortgage payment protection insurance can cover your mortgage payments in full, usually for 12 months and after a deferred period. Examine your options before taking out this type of insurance as it is not always the best value protection available.

Work and state benefits

When it comes to personal financial protection, it’s always worth checking what protection you might already have. If you or your partner are employed, you might have some cover through a workplace benefits scheme.

These benefits are not uncommon and can include life insurance, sick pay, or even some form of income protection. You should be able to find details in your work contract or by asking your HR department. Remember that if you leave your job, you’ll lose these benefits.

What about state benefits? The truth is that for many state benefits add up to much less than they expected. So even if you are eligible for some financial support, it’s likely to be less than you thought.

Savings as a form of protection

Another way you can ensure you have some financial cover in place in the short-term is to build up your savings. The general rule of thumb is to try to put away three months’ worth of living expenses. This should include rent or mortgage payments, as well as food and utility bills and any debt payment plans.

MoneyHelper has a section dedicated to protection insurance which you may find useful.

 

 

This article is provided by MoneyHelper.

All information accurate as of date of publication.