First time buyer guide


Life Insurance & Mortgage Protection Insurance

Taking a step into your newly-bought home can bring about a wave of mixed feelings: on the one hand, you’re ecstatic, you’re finally a homeowner! But on the other hand, it’s only human to feel the burden of responsibility weighing down on you. Having life cover and/or mortgage protection can ease your worries and give you peace of mind.
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Your average homebuyer has two main protection concerns when it comes to their needs for insurance cover: family protection in the event of death, and paying off debts like the mortgage if they can’t meet their payments due to illness or unemployment.

What Is Life Insurance?

It’s a way to make sure your loved ones are looked after financially if you die during the length of your policy.

There are several types of life insurance to cover different needs:

  • Term life insurance: it’s the simplest type of life insurance and lasts for a fixed period of time. You choose the sum you want to be insured for and the period of time you want cover for. The policy will be paid out to your family or beneficiaries if you die within the term of the policy.
  • Whole of life insurance: this type of insurance will pay out a tax-free lump sum regardless of when you die. Some people like to make sure there’ll be enough cash for their family, even if only to cover funeral costs, but more often whole of life insurance is chosen to meet a future inheritance tax bill.

What Is Mortgage Protection Insurance?

Mortgage insurance or MPPI (mortgage payment protection insurance) is a type of insurance that will cover the amount of money you owe on a mortgage if you are unable to pay because you become ill or are made redundant.

Since your mortgage payment is very likely your greatest monthly expense, losing your job or being unable to work due to health reasons may well encourage you to seek protection and not risk losing your property, as the repayments will be claimed, no matter what.

There are three main types of MPPI:

  • Unemployment only: the cover only applies if you’re made redundant or lose your job
  • Accident and sickness only: the cover only applies if you’re badly injured as a result of an accident or if you suffer a long-term illness
  • Accident, sickness and unemployment: it covers you if you’re made redundant, are badly injured and/or have a long-term illness

With MPPI the insurer will pay you a set amount, monthly, for a period of up to two years. Your provider might let you choose a policy that only covers the cost of your mortgage repayments or one that pays out the cost of other bills too.

Other Types of Insurance to Consider

The following types of insurance will help cover your salary if you’re unable to work:

  • Income protection insurance: includes a wider variety of disabilities and illnesses for a longer time, until you can go back to work.
  • Critical illness insurance: provides a lump-sum (tax-free) if you develop a serious illness or injury.

Working out what policy you need will take some consideration. Some things you should bear in mind are: if you have dependants, your age and health, the type of work you do and where you live. Remember, it’s always a good idea to talk to a financial adviser if in doubt.