Critical illness and life insurance should always be part of your expat mortgage plans.
When you buy a property for the first time (whether it’s in Dubai or in the UK), you’re excited about your future. You’re keen to celebrate this big milestone with your family and your loved ones. But have you ever thought about the risks of taking on a mortgage? Primarily, what would you do if you suddenly lost your income because you were unable to work due to ill health?
No one wants to think about what would happen if they got sick. But as expat mortgage experts, it’s our job to talk to you about the different scenarios that could impact your ability to pay your mortgage payments.
So, here’s an important question.
Do you have a critical illness or life insurance policy?
If you said no, then you’re not alone.
Here in the UAE, 48% of residents have no life insurance or critical illness cover (source). Worryingly, 50% of heart attack patients in the UAE are under the age of 50(source) and more than 40,000 people are diagnosed with cancer in the Middle East per year (source).
These statistics are certainly sobering and paint a worrying picture. Because those people who suffer heart attacks or are diagnosed with cancer may have no way of paying their mortgage if their health prevents them from being able to work.
Right now, you might be in the prime of your life with peak health and fitness, and you might not be worried right now.
But it doesn’t take much at all for your finances to be affected by your health.
In fact, previous research from Friends Provident International suggested that here in the UAE, 57% of residents wouldn’t survive financially for more than 3 months if laid off due to critical illness and over a quarter of people (26%) would not last a month.
That’s why you can’t afford not to think about critical illness or life insurance protection.
Why does this matter when you own a property and you live abroad?
If you’ve taken out an expat mortgage, you’ve made a serious commitment. Whether your mortgage term is 15 years or 25 years, you’re committed to paying your mortgage every single month.
If you are an expat landlord with a property back in the UK, the risk can be even greater. You are relying on rental income and your own income to keep everything running smoothly. Any expected disruption to either can quickly create serious financial strain.
Without that insurance policy, you and your loved ones could be under even more stress at a time when you may need to be focusing on your health.
Life insurance and critical illness cover are your safeguards for worst-case scenarios.
No one ever wants to be in a position where they need to make a claim. But if you do need to make a claim, it can ensure your mortgage is taken care of, even if everything else has changed.
What are life insurance and critical illness insurance, and how do they work?
If you haven’t already got a life insurance or critical illness policy, then you may not be aware of what it is or how it works.
So, here’s a quick explainer.
What is life insurance?
Life insurance provides a payout to your loved ones if you pass away during the policy term.
That money can be used in ways that matter most to your family.
- It can clear the mortgage, so they are not left with repayments.
- The money can be used to cover any funeral or repatriation expenses.
- It can be used to replace any lost income or day-to-day living costs. This is particularly important if your family relies on two incomes.
- It can be used to support your children’s education
- Or it can simply give your family an inheritance
Put simply, it turns a difficult situation into a manageable one.
There are different types of life insurance policies available.
Decreasing term life insurance policies are usually linked to your mortgage term. The level of cover decreases over time, often matching your remaining mortgage balance. This means that if you pass away later in the policy term, the payout will be lower than it would have been in the earlier years.
Level-term life insurance policies mean that your loved ones will receive a fixed sum payout. This remains the same whether your policy has been active for one year or fifty years. However, these policies are for a fixed time frame. If you outlive the policy, your plan will expire without any payment.
Whole-of-life insurance is a guaranteed policy that will cover the rest of your life. It is a guaranteed payout of a fixed sum to your loved ones.
What is a critical illness insurance policy?
A critical illness insurance policy will pay out if you are diagnosed with a serious condition such as cancer, heart attack or stroke. This type of cover provides a financial cushion so you can focus on recovery rather than on bills. It can be used to cover your mortgage, replace income or pay for care and treatment.
In reality, being unable to work due to illness is often more likely than passing away during your mortgage term. As we mentioned earlier, the research from Friends Provident International showed how precarious finances can be.
- The average age for critical illness claims is just 54, and for total permanent disability, the average age for a claim is just 52.
- Sadly, the youngest age Friends Provident International has paid out for a critical illness claim is 32, while a terminal illness claim was paid out at just 40 years old.
Whatever your age is now, those age brackets should be the prime of your life. They are very much your working years, not retirement age, which is why it should be a priority for you, whether you are single, married, retired, a parent, or own your own business.
The earlier you take out a policy, the cheaper it will be
We know you don’t want to spend all of your hard-earned money on insurance premiums, but when it comes to life insurance and critical illness cover, the earlier you take out the policy, the cheaper it will be.
That’s because insurance policies work on risk. As you get older, your likelihood of being diagnosed with a serious illness or passing away increases.
The longer you wait, the more expensive the cover can become. And if your health changes, you may find your options are limited or no longer available. So don’t leave it as something that you’ll do ‘when you get round to it’ because it could be much more expensive in the long run.
Why is this important to us as expat mortgage brokers?
You may be wondering why we’re thinking about your life and critical insurance policies when we focus on expat mortgages.
It’s simple.
We want to make sure that whatever life throws at you, you’ll always be in a good place to make sure that you can make your mortgage repayments.
Many lenders are starting to ask a simple question. How would you continue repaying your mortgage if your income stopped
Having the right insurance cover in place helps answer that question with confidence.
You might be questioning what level of cover you need or how long the insurance policy term should last. Those decisions are uniquely personal to your situation, but a good rule is to consider your current outgoings and how long you are committed to them. Think about your mortgage balance, your monthly outgoings and the people who rely on you. From there, it becomes much easier to work out the level of protection you need.
We can match your insurance needs to your mortgage
If you are in the process of arranging an expat mortgage or already have one in place, now is the right time to review your insurance cover. Whether you already have an insurance policy in place or are ready to protect yourself for the first time, we can ensure you have the right insurance policy for your needs.
If you are unsure where to start, speak to one of our advisers who understands expat needs. All it takes is a short conversation to help you find the right cover and put the right safeguards in place.