People may be put off by the cost of mortgage protection insurance, but it can be made more affordable with a little planning. Especially when it’s tailored to fit other potential sources of income, like sick leave, vacation pay, and emergency savings.
Mortgage protection insurance differs from many critical illness plans in that it is much more comprehensive and does not limit your coverage to a specific list of conditions. As a Registered Financial Advisor, I think of the following when trying to make mortgage protection insurance premiums affordable for a family.
1. Payment deadline
The “payment term” is the period of time during which the insurance company will continue to make monthly payments to your family while you are sick and unable to work.
Eliminating this payment term reduces insurance premiums. This is only really ideal if you think you’ll be able to make other arrangements to deal with long-term disability. Lower payment terms may be used in conjunction with “total permanent disability” to reduce risk. “Permanent Total Disability” coverage is a type of insurance that will pay a lump sum if you are unable to return to work. I tend to quote premiums with the payment term set at retirement age(65).
2. Waiting period
If you get sick and cannot work; the “waiting period” is the amount of time you would have to wait before receiving your first payment from the insurance company. Increasing the waiting period to thirteen weeks can dramatically lower your premiums.
This can be a good way to cut costs if you can manage your own financial commitments at the onset of income loss due to illness. Holidays and sick leave from an employer can help tie you down while you wait for a down payment and any savings. Note: If you have this type of coverage, be sure to check if your claims will be paid in advance or in arrears, this can mean a difference of a month with some coverages.
3. Amount of coverage
You do not have to cover the full amount of your mortgage if you believe there will be other family income to continue in the event you are unable to work due to illness. Extended families that share expenses and/or couples might consider this, as well as those with other investments that generate income. Also remember that when you take out mortgage repayment insurance, the ACC is not compensated. Which means you can claim mortgage protection insurance if you receive ACC payments due to an accident.
Since each of these components can have a huge impact on timing and in the event of the worst happening, it’s important to discuss them with your financial advisor before putting a plan in place.
Many features and options are only available based on your health status at the time of application. So it’s important to consider getting what you might need in the long run now. For many people, when the symptoms of an illness begin; launching some of these features may not be an option.
