Mortgage Protection | Typical Case Study
Mortgage Protection Case Study: Alexandra is age 38, a Business Consultant on £45,000pa salary. She is divorced & has 2 children under age 10. Alexandra is due to sell her existing property & exchange contracts shortly on a £235,000 new build home.
She is borrowing via a help to buy scheme deal over 29 years. Her new repayment mortgage is split £30,000 help to buy equity loan & with zero interest charged for 5 years. She hopes to make over-payments on this zero interest mortgage part. The £147,000 balance is also on repayment basis at 3.18% fixed 5 years via a non mainstream lender.
Alexandra still has a £113,000 mortgage decreasing lifecover with 22 years left on smoker rates. This plan was taken out via her existing Building Society nominated Insurer with her last property mortgage. It also includes accident, sickness & unemployment cover protecting her current mortgage payments.
Her employer provides Alexandra she thinks with 5 x salary death in service benefits, company sickpay & a generous medical insurance scheme.
Healthwise she advises is fairly active and fit. She was a 10 a day smoker but quit smoking cigarettes a few years ago, however she is now vaping instead. Being a single mum, Alexandra is aware of the importance of insurances should her own circumstances change & to help keep a roof over their heads.
The mortgage finance brokers she used to get the mortgage for some reason did not get involved in offering her any protection advice. Alexandra therefore firstly looks at what does MSE Martin Lewis say about mortgage life insurance and their various pro’s & cons.
Then later on seeking more professional advice, makes an inquiry through our website about getting a competitive life insurance for mortgage quote
We call back and explain who we are and have a good chat about her current situation, requirements & needs.
She listens to our generic advice & thought process to getting a good mortgage protection insurance deal. We explain that as she has vaped now for over 1 year, this could be on more beneficial vaping smoker rates, rather than just cigarette smokers.
After a fair & personal analysis, we recommend she considers insuring the new £177,000 mortgage with life & earlier critical illness cover over 29 years mortgage term. Child critical illness cover is inclusive, which is important having 2 young children.
We then explain that she could re-approach her existing Life Insurers. However, as she wants to now both insure for more & for a longer term, this will likely require new policy underwriting anyway. Also we establish that her current Insurer charges full smoker rates. So she should consider cancelling her existing mortgage life cover policy in due course (but only once acceptable new terms are agreed).
Alexandra’s confirms her £177,000 repayment mortgage is split into 2 parts 1] 5 years £30,000 is at zero interest 2] £147,000 balance is 3.18% fixed 3 years
We check the Insurers in the marketplace offering life & also critical illness cover given the above considerations. The 2 key factors are: Split Mortgage interest terms & improved smoker rates for vape e-cigarettes smokers. She gives us an affordable budget around £75pm.
Mortgage Protection Case Study
Mortgage Protection Case Study – Research:
From our experience, we are aware there are a few Insurers that could offer more beneficial smoker rates to vapers. This will be dependant if they have given up cigarette smoking for longer than 1-5 years or more. Other Insurers would still charge full smoker rates for vaping.
We research Insurers offering Mortgage life & accelerated or earlier critical illness decreasing cover protection options both over 29 years.
- Plan 1 is £177,000 decreasing mortgage full cover. This is at say 7% loan rate meaning there should be no shortfall with interest rates 0% for 5 years & 3.18% 3 years. Even if she does not make any overpayments but sufficient in the longer term in case mortgage interest rates rise in the future.
However, we find the cost for the above option came to around £100pm ie; above her budget given.
- Consider maybe a cheaper 2’nd option. Hybrid 2 part quote: £100,000 lifecover & £77,000 life cover with accelerated or earlier critical illness also at 7%. It reduces the 2nd option costs down to around £50pm.
The critical illness cover is a good value package product, meaning it’s not one of the more basic insurance plans advertised just covering say cancer conditions only eg; well woman insurance. This includes child critical illness cover which she will find a valuable benefit for her 2 children. The policy should be put into a split trust, to ensure any lifecover benefits go to her chosen beneficiaries. Also her plan benefits in trust should help to avoid probate, or potential Inheritance Tax IHT issues.
Then cost up mortgage protection payments cover MPPI for accident sickness & unemployment. As she says she has generous sickpay via work cover this could always be reduced to unemployment only. Alexandra says there are no planned redundancies at her work but you never know what happens due to ongoing effects of the Pandemic or Cost Of Living crisis 2020’s.
We email these various options, a copy of the Insurers Key Product Features plus specific critical illness quotes & our own legal disclosures. The Insurers we recommended worked out £10pm cheaper using vaping smoker rates than full smoker rates. Later we call Alexandra back to discuss our findings.
She decides to just go ahead with the cheaper 2nd option policy *£177,000 mortgage decreasing protection 29 years but hybrid split option £100,000 lifecover & £77,000 life cover with accelerated critical illness. The premiums were to be guaranteed and protected if she was off work through an accident or sickness.
Alongside she decides to also take up unemployment cover option only on the mortgage payments for upto 12 months. This package brings the costs to around her affordable budget £75pm.
Mortgage Protection Shortfall Options:
In this Mortgage Protection Case Study process we discussed & recommended for Alexandra to also consider…
- Lifecover and critical illness additional cover ie; a critical illness claim still leaves lifecover in place
- Family Life Insurance until her 2 young children maybe independant
- This lifecover would topup her work 5 x £45,000pa death in service benefits
- Lump Sums or Family Income Benefits death protection options
- Buildings & Contents insurance cover for new property
- Check her specific work long term sickpay arrangements, as she was unsure
- If insufficient, then dovetail income protection cover
- All above options reviewed but discounted currently
- Make an up to date will having 2 young dependant children
Mortgage Protection Case Study Conclusion:
We help over the phone to complete & apply for that Insurers underwritten insurance mortgage protection policy via our life insurance brokers system, now fully completing the questions re health, lifestyle & family history.
The 2nd option, £177,000 hybrid policy she wants ideally onto cover asap, rather than wait until she exchanges contracts, in case her health changes interim eg; diagnosed high cholesterol, asthma, lifestyle issues or new family history of heart disease etc; The unemployment cover awaits until the property purchase is completed.
In this Mortgage Protection Case Study, Alexandra is pleased to get some of her new cover now sorted, as she knows she is going to be busy packing & boxing up soon, even though she has not exchanged contracts just yet. She intends to cancel her existing mortgage protection plan only once contracts are exchanged.
She fully understands the various protection shortfalls above we identified though. We send a fully documented recommendations report afterwards explaining her various demands & needs plus existing policy cancellation.
Alexandra agrees it’s OK for us to make a note to recontact her again in the future about a Home Insurance Building & Contents quote and other Insurance matters once settled in.