Understanding more about mortgage protection insurance
For the majority of homeowners, the prospect of losing the roof over their heads is quite understandably one of their biggest fears. For those looking for a method of allaying these fears, mortgage protection insurance offers valuable protection by providing homeowners with the means to meet their mortgage repayments when they are unable to work due to an accident, ill-health or a period of unemployment.
Do you need cover?
If you were unable to work for a prolonged period due to injury, ill-health or a period of unemployment, would you be able to maintain your mortgage repayments? If no, then mortgage protection insurance may be a suitable product for you.
Although mortgage protection insurance policies differ, typically they will only pay out for a maximum period of a year, so if you already have savings which can cover your payments for this period of time, you may not require cover.
Before making a decision, it is also well worth taking a closer look at your contract of employment. How much are you entitled to if you suffer from long term sickness or are made redundant? If you have been working in the same job for a number of years then your entitlement may be a generous one, in which case, do you need mortgage protection cover as well?
How do mortgage protection policies work?
Although the terms of each policy will differ, there a few general rules which apply to mortgage protection insurance. Typically a policy will start paying out between 31 days and 60 days after the commencement of a period of unemployment or ill-health; however, there are some policies which are ‘back to day one plans’, which back date the payments to the first day you were out of work.
The majority of policies provide cover for a period of 12 months, although periods will differ from policy to policy and can be as little as three months. The monthly payments are often caped, so if your mortgage repayments are particularly large then you should consider how you will make up the surplus.
Other important considerations
There is the possibility that receiving a payout from mortgage protection cover could affect your entitlement to income related benefits. You should also clarify whether the policy will pay you directly or your mortgage lender.
Do you have other insurance policies in place which provide comparable cover? Sometimes people have similar policies such as income protection insurance, which will provide you with a guaranteed income if you unable to work due to ill-health; however, it does not provide protection in the event of unemployment.