Understanding Mortgage Protection Insurance
A mortgage is a big commitment and the responsibility to make the monthly repayments is probably your largest outgoing. Therefore, it makes sense to protect your mortgage should you be made redundant, fall ill or suffer an injury. There are two main types of insurance to protect your repayments: a short-term policy called MPPI (Mortgage Payment Protection Insurance), and long-term cover called Mortgage Life Insurance.
What is Mortgage Payment Protection Insurance (MPPI)?
MPPI will pay you a set amount each month should you be unable to work. Should you lose your income due to redundancy, long-term sickness, or injury, it is designed to cover your mortgage payments. For a period of 12-24 months MPPI will pay a tax-free cash sum whilst you recuperate. It can also be called ASU (Accident, Sickness and Unemployment) insurance, and the amount your policy pays out can be determined quite flexibly by yourself. Your policy can just cover your mortgage payments, usually covering 125% of your mortgage costs, or your other bills too.
Costs and features
Premium costs vary, and depend on such things as: age, occupation, the cost of your mortgage repayments, and the products you apply for.
Most mortgage insurance policies come with exclusion periods, meaning you won’t be able to claim as soon as you take out the policy. The exclusion period can be from 30-180 days. If your employer offers any sickness benefits, then it may be worthwhile taking a policy with a longer waiting period – the longer the waiting period the cheaper the policy tends to be. There are policies that can backtrack and pay out from your first day off work – these are called ‘Back-to-day-one’ policies and are typically more expensive. All policies are payed in arrears though, so whether or not there is a waiting period you won’t receive your pay out until one month after your policy is accepted.
There are pre-existing conditions that will hinder your ability to be accepted for mortgage protection insurance if you have experienced them in the last 12 months. Some policies have strict criteria and others will offer no protection at all should you have a pre-existing condition such as stress, depression or back problems. Also, your occupation may affect the type of policy you get, as well as other medical conditions so make sure you read the small print.
What is Mortgage Life Insurance?
Mortgage life insurance will pay off the outstanding amount on your loan should you pass away within the policy term. It comes in two forms:
Decreasing life insurance – if you have a repayment mortgage then the amount of cover reduces over the life of the policy. This usually runs alongside a specific debt like a mortgage or loan. Therefore, if you die before the loan is repaid then your costs will be cleared. You can also have joint life insurance, so should your partner pass away then the policy will pay out.
Level term life insurance – if you have an interest only mortgage, or sometimes you can apply with a repayment mortgage, and wish to leave a lump sum upon your death, level term will mean the amount payed out remains the same. You decide how long the policy runs for and how much would be paid out. You can also choose to add critical illness cover to this insurance in the event you suffer from a serious illness.
There are many options for mortgage protection insurance, and there are alternatives for income protection that you can opt for too. Should anything unfortunate happen in the future it is best to be prepared for it and protect the repayment of your mortgage and your families’ future. Mortgage protection insurance can be the safety blanket you need and can be cost effective, so seek advice from a specialist to get the advice you need.
The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of So Smart Protect or So Smart Financial Services.