People can be put off by the cost of mortgage protection insurance but this can be made more affordable with a little planning. Especially when tailor made to fit alongside other possible sources of income, such as sick leave, holiday pay and emergency savings.
Mortgage protection insurance differs from a lot of critical illness type covers, in that it is much 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 premiums for mortgage protection insurance affordable for a family.
1. Payment Term
"Payment term" is the length of time the insurance company will continue to make monthly payments to your family while you are suffering from an illness and unable to work.
Dropping this payment term lowers the insurance premiums. This is only really ideal if you think you will be able to make other arrangements to cope with long term disability. Lower payment terms can be used alongside "total permanent disability" to lower some risk. "Total permanent disability" cover is a type of insurance which will pay out a lump sum in the event that you are unable to ever work again. I tend to quote premiums with the payment term set at retirement age(65).
2. Wait period
If you fall ill and are unable to work; the "wait period" is the amount of time you would have to wait before getting your first payment from the insurance company. Increasing the wait period to thirteen weeks can reduce your premiums drastically.
This can be a good way to reduce costs if you can manage your own financial commitments at the onset of losing an income due to illness. Holidays and sick leave from an employer can help to tie you over while waiting for the initial payment as well any savings. Note - if you have this type of cover make sure you check if your claims will be paid upfront or in arrears, this can mean a difference of one month with some covers.
3. Cover amount
You don't have to cover the full amount of your mortgage if you feel that there will be other family income which will continue in the event of you not being able to work due to illness. Extended families sharing expenses and or couples could consider this as well as those with other investments which generate an income. Also remember that when taking a mortgage repayment insurance, ACC is not offset. Meaning that you are able to claim mortgage protection insurance if you are receiving ACC payments due to an accident.
As each of these components can have a big impact when and if the worst should happen, it is important to discuss these with your financial adviser before putting a plan in place.
