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Mortgage Protection Insurance

When you borrow a significant amount of money, say to buy a home, the lender needs reassurance that you can keep up with the repayments. Regardless of your personal circumstances.

If you lose your job, become too ill to work, or face other financial difficulties, Mortgage Protection Insurance is there to help you keep up with your commitments. Until you can get back on your feet.

Read on to find out more about Mortgage Insurance and how it may help you.

What is Mortgage Protection Insurance?

Mortgage Protection Insurance is a specialist insurance product that protects your mortgage repayments in the event that you lose your job, become too sick to work etc.

This product is also known as ‘Mortgage Payment Protection Insurance’, ‘Mortgage Insurance’ or MPPI.

Many mortgage providers will ask that their loan applicants take out some form of financial insurance to protect their mortgage payments, in order to be accepted for the mortgage. However, it is also worth noting that it is not a legal requirement for you to take this form of insurance. Further, you may be recommended a product by your mortgage lender. If this is the case, you also have the choice to go with another MPPI provider, if you wish.

Many of these plans fall into three main categories of protection. These include;

• Unemployment Only – This will protect you in times of redundancy only
• Accident and Sickness Only – This will protect your payments in times of long-term illness and serious injury.
• Accident, Sickness, and Unemployment – This protects mortgage payments in times of long-term illness, serious injury and redundancy from work.

When making a claim, the payout on these policies, in many cases, may be capped to around £1,500 a month to £2,000. Therefore, if you need a higher amount per month to pay your mortgage, you may wish to look at other forms of insurance in this area. The funds will also be sent, in most cases, directly to your mortgage provider. Unless you seek a policy in which the funds are transferred to you (as is the case for those who opt for additional cover).

Should I Consider Taking Out Mortgage Protection Insurance?

• If you are a UK homeowner looking at this form of cover, you would seek a policy that would payout the amount left outstanding on your mortgage loan.
• Alternatively, you can seek to include other bills within this policy, as well as your mortgage repayments, in many cases. (Some providers will allow their customers to claim up to 125% of their mortgage loan).
• There are policies also for those who would like a certain percentage of their normal salary covered (say, half) in times of sickness, serious injury, and redundancy.
• The amount you will have to pay towards your monthly premiums will be determined by your age, mortgage loan amount, occupation and other factors.

Let’s Look at a Mortgage Insurance Example:

Sally is searching for financial protection, as she has just been accepted for her first mortgage. She has just turned 30 years old and her mortgage is worth £124,000. Her monthly mortgage repayments cost £650 a month and she earns £28,000 a year as a textile designer.

After speaking to an independent insurance broker, she was able to secure a mortgage protection plan which costs around £23 a month. With this level of cover, Sally will be able to make her mortgage payments in times of sickness and serious injury. She opted out of redundancy cover because she can work freelance.

What are the Benefits of Mortgage Protection Insurance?

• Day One Cover – It is possible to find mortgage protection insurance that covers you from the very first day you are made redundant from your job. Usually, this payment will be made in arrears, so you will receive your money one month after the claim has been accepted. These are known as ‘Back-to-day-one’ policies.
• Sum Assured Options – With some policies of this type, you can choose a sum assured amount with your plan. These additional funds can be used to cover other payments, besides your mortgage loan repayments.
• A Year’s Cover – With a payout from your mortgage protection cover, in many cases you may receive up to one year’s worth of mortgage payments when you make your claim. This can vary depending on your policy and provider. However, some policies will pay out over a period of up to two years.
• Shorter Cover Periods – You can also find policies which offer protection for shorter periods (say, a few months). These policies may be cheaper in premiums. However, you may have to wait longer before you can make an eligible claim.
• Self-Employment – If you are self-employed, many insurers will accept you onto a plan. Although, do check if there are any restrictions on the type of work you do and the nature of your contracted work (i.e. casual or fixed-term contracts).

What are the Pitfalls of Mortgage Protection Insurance?

• Mental Health Problems – Some insurers will not payout for claims made in cases of depression, anxiety and other mental health problems that may prevent a person from going to work.
• Medical Exclusions – As mentioned previously, this policy will cover you in times of serious sickness and injury, therefore some medical conditions (such as back pain) may be excluded. In some instances, you may need to provide medical records that prove your condition is ‘serious enough’ to warrant you making a claim. This is why it is vital that you know what will be covered in your policy, by carefully reading the fine print.
• Pre-Existing Medical Conditions – As with many insurance products, those with a pre-existing medical condition may struggle to find cover. You may, for instance, be excluded from claiming for your pre-existing medical problem if it recurs in the first two years of you taking out this insurance, as an example.
• Periods of Exclusion – You may be excluded from making a claim on this insurance for a certain period after you take out a policy. This can be anything from 30 days to nine months for sickness and injury cases, or longer if you are making an unemployment claim. In many cases, longer exclusion periods can mean that you pay less towards your premiums.
• State Benefits – With this form of insurance, a payout may result in you no longer being eligible for some support from the state. You can check with your provider if these changes may affect your future entitlements.

What are The Alternatives to Mortgage Payment Protection Insurance?

• Employee Benefits – If you are an employee who has been with the same company for a number of years, in the case of your redundancy, you may already be entitled to a decent payout from your employer. If this is the case, you may just want to look at covering yourself in cases of serious sickness and injury only.
• Savings – If you are thinking about taking out an insurance policy, of any sort, it may be wise to also have some savings stashed away to cover you for excess charges and assurance waiting periods. This will ensure that you can keep up with your financial commitments until a payout can be made to you.
• State Benefits – You may be entitled to help from the UK government in times of unemployment and long-term illness and disability. Check with your local Citizen’s Advice Bureau to find out if you eligible.
• Other Forms of Insurance – You may wish to look at Term Life Insurance, Income Protection Insurance and Critical Illness Insurance as alternative assurance products designed to protect your financial commitments in times of crisis.

To find out more about Mortgage Protection Insurance and to get a free, no-obligation quote, get in touch with an insurance broker. All you have to do is fill in a short form to get started.