Protection insurance for mortgage clients – 4 things you should read
When putting in place a protection plan (or plans) to cover a mortgage there are a number of things to consider. Matching the sum assured and term of the plan to the liability is the simple part, however there may be other considerations for advisers. Will the plan cover the client from the date the liability starts? What interest rate should be used? What happens if they increase their mortgage? In this ‘4 things you should read’ we bring you a round-up of insights focusing on mortgage cover.
Providing cover from the date the liability starts
As mortgage advisers will be all too aware, a client’s mortgage liability starts from the date they exchange contracts on their home. The actual mortgage start date however, is likely to be a later date than this when the property purchase is completed. Aligning the start date of mortgage protection to the property purchase completion may leave the client exposed, however most insurers will provide a level of free cover for such periods as these articles explains.
How important is the interest rate?
When putting in place a decreasing mortgage protection plan to cover a repayment mortgage, advisers will often have the opportunity to select what percentage the plan will decrease by each year. The insurer will guarantee to repay the mortgage so long as interest rates do not go above this percentage and the mortgage has not been increased. Traditionally a rate of 8% or 10% have been typically used, however insurers now offer a far wider range options. Whilst most will agree that it is unlikely that interest rates will reach these numbers, we are in unprecedented times with the lowest interest rates on record and the longer term impacts of the pandemic still to hit. This article looks at what options are available to advisers to help provide more guarantees that the plan put in place will actually cover the client’s mortgage should the worst happen.
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What if the client moves or remortgages leading to a bigger liability?
As people progress through their life there are many events that might lead to them needing more cover. Zoopla statistics from 2017 highlight that on average Brits move home every 23 years, however this figure changes dramatically across different regions. This also does not take into account people who take equity from their home for whatever reason and as such increase their mortgage liability. Where this happens the mortgage protection plan put in place is unlikely to cover their full liability, however insurers offer Guaranteed Insurability Options which can help client’s increase their cover without underwriting as this article examines.
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What if a couple split up and one takes over the full mortgage?
For the vast majority of protection plans, two single life plans are more beneficial than a joint life plan. When covering a joint mortgage however, there are some that might argue that there is only one liability and this would only ever need to be repaid once and, as such, a joint life plan is sufficient and separate single life (arguably family income benefit) plans should be set up for family protection needs. The benefit of two single life plans covering a mortgage is that if the mortgage is transferred into one name the cover for that person remains suitable. If set up on a joint life basis then although more work, certain insurers will enable clients to transfer the cover to single life plans as this article examines.
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