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What is Mortgage Protection Insurance and what are the benefits?
Mortgage Protection Insurance is also known as Mortgage Life Insurance or Mortgage Payment Protection Insurance and is used if you have a either :-
Mortgage Protection Insurance - can take 3 basic forms -
Life Insurance
Critical Illness Protection
Income Protection Insurance
Life Cover
Will guarantee that, in the event of your death, your mortgage will be fully repaid. The policy is normally written with the mortgage provider specified as the beneficiary as they receive the pay out if you die.
Critical Illness Protection
The latest requirement on critical illness insurance cover is that most lenders now insist that a suitable critical illness insurance plan is taken out to provide cash lump sums to cover your mortgage or other debts in the event of a ‘diagnosed’ critical condition or serious illness such as a Stroke, Heart Attack, Cancer, Organ Failure etc. With medical science advancing daily it is most likely you will survive any of these conditions for many years to come but how will you work to repay your mortgage as bills keep coming in irrespective of your health.
Income Protection *
A less costly form of protection can be Income Protection, which is more suitable for the self-employed person where they do not have the benefit of a sick pay scheme with their employer. This type of protection will maintain a level of income sufficient enough for you to continue with your lifestyle and meet you commitments. Benefit normally continues until you return to work or to an elected retirement age.
*Low Cost Income Protection [ASU]
Some professions such as those working in the construction industry or automotive industry may find the premiums quite high for full income protection. ASU is a low cost alternative, which starts to pay out after only 4 weeks form the Accident, Sickness or Unemployment but will only continue to pay out for 1 or 2 years as opposed to a retirement age. In effect it will provide a cushion of financial support not a permanent wheelchair.
Would you buy travel insurance from your travel agent?
Then why buy your mortgage protection from your lender?
You should be aware that all building societies and mortgage companies recommend, and some insist, that Mortgage Protection Insurance be taken out.
Whatever you choose to do may not be up to you as the lender usually sets the requirements, but you should always negotiate and never simply accept what the lender is offering as this is not the cheapest way to provide the cover for your mortgage. The same would be true of when you book your holiday with your travel Agent [if you still use one]. You wouldn’t dream of taking the travel insurance offered as you can buy the same for up to 60% less elsewhere. The same applies to mortgage protection you need to shop around to get the best deals to provide your mortgage protection.
The Internet is an excellent place to look for alternative cover providers and you can certainly save money in future premiums as you will be paying the premium for the term of the borrowing. The cheaper you can buy in the mortgage protection now the more you will save over the next 15 or 25 years.
Whilst you can obtain quotes easily enough online you should take advice from a human being as to make sure you have the correct policy to suit your lenders requirements. You can do some of your own research but you should seek advice and talk through your case as every situation and customer needs are different.
 Mortgage Lenders have been increasing under government pressure following the last economic collapse during the 80’s so as to ensure that home owners are not put under pressure and face repossession over a medical condition that may prevent them from maintaining the mortgage payments.
This is why Mortgage lenders now ask for mortgage protection in some form or another or combination of policies depending upon the amount of borrowing and the employment status of the borrower.
All Mortgage Protection Policies we offer are fully accepted by building societies and mortgage companies.
I have a 'Repayment Mortgage'. What sort of Mortgage Protection Insurance do I need?
With a 'Repayment' Mortgage the outstanding value of your mortgage decreases each month as you steadily pay off your mortgage. Therefore, each year you need less insurance to cover the repayment of your mortgage. Most Life Companies offer special Mortgage Protection Policies to cater for this situation - it is generally referred to as 'Decreasing Term Insurance'. Decreasing Term Insurance is the cheapest available form of life insurance.
Your insurance cover needs to finish on the date you are due to have fully paid off your mortgage and the length of time between now and that repayment date is called the policy's 'term'. Each year the Life Insurance Company calculates for you how much insurance you need to pay off your mortgage.
Please remember that the outstanding value of your mortgage is not affected by inflation and, therefore, you do not need to worry about inflation proofing your policy (i.e. index linking).
I have an 'Interest Only' Mortgage. What sort of Mortgage Protection Insurance do I need?
With an 'Interest Only' Mortgage the outstanding value of your mortgage remains constant as each month you are only paying off the value of the interest on the money you have borrowed. Therefore, the value of your insurance cover similarly needs to be constant to always equal the value of your outstanding mortgage. In these circumstances you need 'Level Term Insurance'.
Your insurance cover needs to finish on the date you are due to repay your mortgage and the length of time between now and that repayment date is called the policy's 'term'.
Please remember that the outstanding value of an 'Interest Only' mortgage is not affected by inflation and, therefore, you do not need to worry about inflation proofing your policy (i.e. index linking).
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