As a first-time buyer, there are lots of expenses going out. You may have put off taking out a financial protection policy because of this, or you may think it’s not important. However, the risks could be much higher than you think. Julie Ward, Mortgage Client Support at Pembroke Financial Services, explains why.
Julie said: “Financial protection products are insurance policies that pay out under certain circumstances. There are several different types including life insurance, critical illness cover, and income protection. They’re designed to provide either a regular income or a lump sum if something unexpected happens.
“Taking out appropriate financial protection can provide you with peace of mind that you could still pay for essentials, including your mortgage, if your income stops.”
Over a third of first-time buyers risk income loss before they reach 65
The average age of a first-time buyer in the UK is now 34. Rising property prices and the need to save sizeable deposits means the average age of first-time buyers has been increasing. However, most are still young, and you may think: “I’m too young to need financial protection.”
Sadly, that’s not the case. LV’s Risk Reality Calculator shows that there are still risks.
A non-smoking female aged 34 has an almost four in ten (39%) chance of being unable to work for two months or more, suffering a serious illness or death before reaching the age of 65. For a male, there is a 33% chance. As your mortgage is likely to span several decades, it’s important to consider what could happen during this time and the steps you can take to ensure you’re financially secure.
Julie explained: “By assessing the risks, you’re in a position to take steps to limit the impact it would have. This may include building up a rainy-day fund to draw on if there’s an emergency or unexpected income loss. However, financial protection can provide more certainty in some circumstances and mean your savings are preserved for other uses.”
Being unable to work due to accident or illness is the biggest risk for first-time buyers
For the average first-time buyer, the biggest risk is that an illness or accident will leave them unable to work for two months or more. For a non-smoking female, this risk is 35%, for a male, it’s 27%.
If your income were to stop, how would you pay your mortgage and other essential outgoings?
Julie added: “For some, an employer may provide sick pay which will deliver ongoing security. However, many will need to rely on their savings and Statutory Sick Pay, which is just £95.85 per week. If you’d struggle to cope financially, it’s worth considering how income protection can help. This type of policy would provide a regular income, usually a portion of your salary, until you’re able to return to work, retire, or the policy ends. It can provide financial certainty and allow you to focus on recovering.
“Needing to take extended time off work can happen unexpectedly, even if you’re healthy. Being young doesn’t mean you can’t be involved in an accident that takes you several months to recover from.”
Critical illness and life insurance can add value as well
While accidents and illnesses that take some time to recover from are the biggest risks to those in their 30s, serious illness should also be considered. More than one in ten 34-year-olds will be diagnosed with a serious illness before they reach 65. It may mean you need to take months off work, make significant adjustments, or take a step back altogether.
Critical illness cover may be appropriate here. This type of policy would pay out a lump sum on the diagnosis of certain conditions. This lump sum could be used to pay off your mortgage debt, adjust your home, or mean you can spend more on the things you enjoy. Again, it can provide financial security while you process the diagnosis.
The most common critical illness claims are for cancer, heart attacks, and strokes. When thinking about the risk of serious illness, we’re often guilty of thinking it’ll never happen to us. However, having the right policy in place can mean that should it happen to you, you won’t have to worry about managing financially.
Julie continued: “For first-time buyers purchasing with a partner or that have children, life insurance should also be considered. While the risk is relatively small, at around one in twenty, it can protect those that are most important to you. Life insurance pays out a lump sum on the policyholder’s death, it can mean a partner and children can remain in their home following the loss. If your loved ones would struggle to cope financially if you passed away, life insurance can provide additional financial security. It can be difficult to consider, but it’s important.”
Get in touch to discuss your financial protection needs
As a first-time buyer, there’s a lot to consider, if you’re unsure about the type of financial protection that would suit you, please get in touch. We can help select a policy that matches your priorities and concerns.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.