Complete Guide To Protecting Your Home & Mortgage
Life is full of financial commitments. From purchasing a new car to saving for a dream wedding, the demands on our finances are huge. But purchasing a home is probably the most significant financial transaction we’ll ever make and it’s not without risk: from natural disasters to critical illness and unemployment to premature death, unexpected perils could severely affect your family’s ability to repay a mortgage in the unfortunate event that life takes a turn for the worst. And while it’s tempting to assume that life’s tragedies only happen to other people, the fact is that, sometimes, living is rather like rolling a dice.
At Orchard Mortgage Solutions, our experts can ensure that your home, and your livelihood, is adequately protected so you can enjoy the reassurance that, should life throw the unexpected at you, your entire family is looked after and your home and most cherished possessions are safeguarded.
When you’re arranging your mortgage with Orchard Mortgage Solutions, there are a range of protection options that will give you peace of mind as you move into your dream home.
When you’re applying for a mortgage for a new home or re-mortgaging your existing property, buildings insurance is a must-have that all lenders require; without it, you simply won’t be offered a loan. This is because the mortgage company requires their liability to be protected against any unforeseen disaster that could render the property worthless or severely affect its value.
Buildings insurance will protect the entire fabric of your property, down to the very last brick, but also the roof, ceilings, windows and doors – anything, in fact, that you’d regard to be part of the building. This also includes some permanent fixtures, such as bathroom suites and fitted kitchens. While there are different levels of cover available, a standard policy will cover the cost of repairs if your home is damaged by adverse weather, fire, explosion, flooding or vandalism. If your home is so severely damaged that it needs to be demolished, buildings insurance will also cover the cost of clearing the site and rebuilding the property (the ‘reinstatement value’). Bear in mind that the reinstatement value is usually less than the value of the property; a qualified surveyor, appointed by the mortgage lender, will determine the cost of a rebuild.
While contents cover isn’t compulsory, it is worth considering how you would feel if intruders stole expensive electrical equipment or irreplaceable family heirlooms from your home, or if fire ravaged the building and destroyed everything inside.
Contents insurance protects everything in your property – the items that you’d take with you if you moved home – as well as carpets and light fittings, from damage caused by a variety of incidents, including theft, flood, fire and adverse weather. With most insurance policies, you can also opt for accidental damage for a higher premium, for example if red wine is splashed on a carpet or a television is knocked over by an overenthusiastic toddler. Options may also exist to protect garden furniture, the contents of outbuildings, and high-value items, such as laptops or smartphones, away from home.
It’s important to insure the contents of your home to the correct value (some insurers will offer a blanket amount based on the size of your property and family); some items, such as works of art or jewellery, may need to be specified separately on your policy, so it can be worth making a list of high-value possessions before you arrange cover.
Life insurance / mortgage protection
Sudden early death is, thankfully, rare but the sad fact of life is that it happens to a minority of families. If you or your partner were to pass away suddenly and without warning, the emotional impact would, understandably, be immense; life insurance or mortgage protection would help to ease the financial burden while your family adjusted to the situation.
It’s important to understand that life insurance and mortgage protection are two different types of policies, each with their own benefits:
Life insurance provides a single, lump sum payment (the ‘sum assured’) on the death of the insured adult to their dependents but will often also cover terminal illness if this is expected to be less than 12 months in duration. The sum assured is usually a set amount which you choose when the policy is arranged and can be used to pay off the mortgage or other loans, or for any other purpose your dependents choose.
Mortgage protection is different in that the sum assured is designed to repay the mortgage in its entirety in the event of your death. The length of the policy is usually matched to the duration of the mortgage on a ‘decreasing term’ basis; in other words, the amount of money paid out goes down in line with the outstanding amount of the mortgage. Because of this, mortgage protection is usually a cheaper option.
In addition to life insurance and mortgage protection, other options are available to safeguard your home and your family if circumstances require.
Critical illness insurance
Critical illness is often overlooked as homebuyers tend to think only of the worst-case scenario in which a serious illness becomes terminal. However, some serious illnesses may improve over time so an insurer wouldn’t pay out if the condition is not expected to cause imminent death. Nevertheless, critical illnesses can be severely debilitating, preventing a patient from being able to work for a considerable period and therefore damaging the household income.
Critical illness cover protects homeowners against common conditions and usually provides a single payment to the patient so that household expenses, such as the mortgage, can be covered during the illness. The sum assured may be a set on a level term, or it may decrease over time or increase in line with inflation. Some policies offer free cover for children, as a parent’s ability to work would be affected if a child needed continuous care due to illness.
Family income benefit
Instead of a lump sum payment, Family Income Benefit provides a regular income to your dependents if you die or become terminally or critically ill during the insured period. The income is tax-free and can provide more stability for your family if a lump sum payment would present practical difficulties, for example with budgeting in the long-term.
Many employers offer a limited period of sick pay if you are unable to work through injury or illness, and often it is below your usual take-home rate. Income protection offers a monthly payment so you can continue to meet your financial commitments, including your mortgage, and you can choose how long to defer the first payment while you receive sickness pay from your employer (check your contract of employment to find out for how long you would be paid). The term of the protection can be set for as little as a few months or until your retirement age, although the longer the term, the higher the premium.
Independent, personalised advice
At Orchard Mortgage Solutions, we can provide a personalised approach to protecting your home and your mortgage that takes account of your family’s individual circumstances, rather than offering you a blanket policy that fails to meet your needs. With the peace of mind that, if life hands you some unexpected challenges, your home and livelihood will be fully protected, you can concentrate on enjoying every day to its limit.