The cost of mortgage protection insurance can put people off, but with a little planning it can be made more affordable. Especially when tailored to fit with other potential sources of income, such as sick leave, vacation pay and emergency savings.
Mortgage protection insurance differs from many critical illness type covers in that it is more comprehensive and does not limit your cover to a specific list of conditions. As a Registered Financial Advisor I think about the following when trying to make mortgage protection insurance premiums affordable for a family.
1. payment terms
The “payment period” is the period the insurance company will continue to make monthly payments to your family while you are suffering from an illness and unable to work.
Skipping this payment period reduces the insurance premium. This is really only ideal if you think you will be able to make other arrangements to cope with the long-term disability. Reduced payment terms with “total permanent disability” may be used to reduce some of the risk. “Total permanent disability” cover is a type of insurance that will pay a lump sum in case you are ever unable to work again. I quote premiums with fixed payment term at retirement age (65).
2. Waiting Period
If you fall ill and are unable to work; The “waiting period” is the amount of time you must wait before receiving your first payment from the insurance company. Extending the waiting period to thirteen weeks can reduce your premiums significantly.
This can be a good way to reduce costs if you can manage your financial commitments at the outset of losing income due to illness. Holidays and sick leave from an employer can help tie you over while you wait for the initial pay as well as any savings. Note – If you have this type of cover make sure you check whether your claims will be paid in advance or in arrears, this could mean a difference of one month with some covers.
3. Cover Amount
You don’t need to cover the full amount of your mortgage if you think there will be other family income that can continue in the event you can’t work because of illness. Extended families and or couples sharing expenses may consider this along with other investments that generate income. Also remember that when taking out mortgage repayment insurance, the ACC is not offset. This means that if you are receiving ACC payments due to an accident, you can claim mortgage protection insurance.
Since each of these components can have a major impact on when and if the worst should happen, it’s important to discuss these with your financial advisor before planning.
There are many features and options available subject only to your health at the time of application. That’s why it’s important to consider what you need now and in the long term. For many people, when the symptoms of an illness begin; Starting some of these features may not be an option.