You might have seen in our previous blogs that we often tell you about how tricky, confusing, and stressful mortgages can be – unless you have help from experts like us. Add mortgage protection insurance into the mix and you’ve suddenly got one other thing to think about. Luckily though, you do not need mortgage protection insurance, it is not a legal requirement, and you can simply forget about it if you wish.
That could, though, be a bad idea. Whilst you don’t need to have a mortgage protection plan in place, it can be extremely beneficial to you as a homeowner.
To help give you a better understanding of why you may want it, even if you don’t need it, we look at mortgage protection insurance in this blog and hopefully answer any questions you may have.
What is mortgage Income protection insurance?
Mortgage protection insurance, also often known simply as mortgage insurance, is a form of insurance coverage specially made for homeowners and their families. Such insurance policies exist to ensure that your mortgage can still be paid in the event of illness, injury, or redundancy. The payments will be scheduled monthly to fit in with your mortgage payments and will last for up to a year or until you return to work, whichever comes first.
The payouts are normally pre-agreed to fit with your monthly mortgage payments. However, some policies pay out more than the mortgage amount to help you cover the cost of living.
Payments aren’t instant though; you’ll need to be out of work for at least 30 days, and in some cases, as many as 180 days, before the provider starts making payments but this depends on the deferred period you have set upwhen you took out the policy.
This makes mortgage protection insurance somewhat different from mortgage life insurance.
What is the difference between mortgage income protection insurance and mortgage life insurance?
A mortgage income protection insurance policy pays you a monthly payment to cover your mortgage payments for a specific time in the event of injury, illness, or redundancy. Mortgage life insurance on the other hand pays out a cash lump sum which would be the equivalent to the mortgage balance (although this can be higher or lower depending on how much insurance you have) in the event of death. This is particularly useful as it means your partner or other dependents can remain living in the home without fear of the mortgage remaining unaffordable.
Do I have to get a mortgage income protection insurance policy?
No, there is no requirement for you to have a mortgage income protection insurance policy, but it is advisable to take one. Should you, unfortunately, fall ill or lose your job, the assistance the policy provides helps keep the roof over your head, Not only that, but with the added peace of mind your finances are a little more secure, you can put the focus into recovery or a job search without the worry your home is no longer affordable or that it might be repossessed.
How much is mortgage protection?
If you want to take out a mortgage income protection insurance policy, you need to assess your needs before committing to coverage. Costs vary depending on a host of factors. An insurance provider will look at your earnings, your mortgage payments, what your job is, and what kind of coverage you would like.
For example, if you work in a job that might put you at risk of injury, your policy will cost more than if you have an office job where the risk is smaller. You’ll also find the policy costs more if you opt for one with shorter claim times. A policy that allows you to make a claim the moment the policy becomes active will cost more than one that requires you to hold it for three months before making a claim.
As a result of these varying factors, you could expect to pay anything from £10-£any for your mortgage income protection insurance policy.
How much does mortgage income protection insurance payout?
When looking for a mortgage income protection insurance policy, you can find a host of options providing varying levels of coverage. You could opt to simply cover mortgage payments, but you could look for a plan that covers your mortgage, plus a little extra to help out with general living costs.
It is worth noting that in most cases though, payouts are capped and may not cover your full mortgage amount. The insurers normally offer up to £2,000 per month as a maximum so be aware of that should your mortgage be higher than this. This does very form provider to provider though so best to get some advice.
What does mortgage income protection insurance cover?
Providers typically offer three different forms of mortgage income protection insurance, and you can choose which one best suits your needs and budget.
A policy covering unemployment simply pays out if you were to lose your job, an accident and sickness policy pays out should you be out of work due to illness or injury, and a combined policy covers job loss as well as sickness or injury.
What doesn’t mortgage income protection insurance cover?
Whilst policies for mortgage income protection cover sickness, injury or job loss, some aspects of each of these are excluded.
For example, if you were made aware, in advance, that you would be losing your job, you’d be unable to make a claim. Likewise, if you took voluntary redundancy, you’d be ineligible for claiming.
Other examples of exclusions include:
- Getting sacked
- Some pre-existing medical conditions
- Self-inflicted injury
- Specific health issues
Are there alternatives to mortgage income protection insurance that help cover my mortgage?
Yes, there are, and some insurance policies may provide you with better coverage for your circumstances. Income protection insurance for example offers longer term payments and for more than just the value of your mortgage. Due to the enhanced benefit, the premium will likely cost more than that of a mortgage protection plan.
Critical illness cover is another option and will provide a lump sum payment should you be stopped from working due to a defined serious illness. What is defined as a serious illness may vary per provider though so it would be worth checking before signing a policy.
Mortgage protection insurance can be a useful way to give you added security and peace of mind. With mortgage payments, and possibly some additional living costs covered, you can see that you and your loved ones can remain in your home whilst you recover or search for work. Should you be unsure of which insurance coverage is best for you, speak to our team. At Mortgage Saving Experts, we use our many years of experience and product knowledge to help you find the perfect mortgage insurance policy for you. Contact us today to find out more.
