If your mortgage takes a high proportion of your monthly income, what happens if that income stopped coming in?
Accidents, a health crisis or redundancy may strike at any time, potentially leaving you unable to make those all-important repayments.
Defaulting on your mortgage is serious. Your lender is obliged to offer forbearance, which means they must try to work with you for a few months if your finances are disrupted through no fault of your own. But ultimately your property could be repossessed, and you and your family could find yourself without a roof over your heads.
Fortunately, mortgage protection insurance exists to provide financial support and peace of mind.
What is mortgage protection insurance?
Mortgage payment protection insurance, or MPPI, is a specialised insurance policy that covers the cost of your mortgage repayments if you become unable to meet them yourself due to accident, illness or unemployment.
Unlike general income protection, which can cover all living expenses, MPPI is mainly restricted to your mortgage repayments – which means costs can be considerably lower.
In most cases, with MPPI cover your insurance provider will pay out a set amount each month for up to a year or until you return to work – whichever comes first.
Cover varies with different policies. The most common is to pay your monthly mortgage repayments in full, so long as they don’t exceed 65% of your gross annual salary. If more of your salary is spent on your mortgage, an insurer will typically make a partial contribution to your repayments each month.
Some policies offer a higher level of cover. You may be able to arrange cover paying up to 125% of your mortgage costs, giving you extra to pay for household bills.
What exactly does mortgage protection cover?
There could be many reasons why your income stream dries up. You can cover the most common, with three levels of mortgage protection:
- Accident and sickness covers your mortgage repayments if you were to become incapacitated by a long-term illness or serious injury.
- Unemployment provides cover if you were to be made redundant.
- Accident, sickness and unemployment offers comprehensive cover, whether you were to suffer a serious health problem or lose your job.
As with any insurance policy, there will be exclusions. The conditions and circumstances mortgage protection insurance usually won’t cover are:
- Pre-existing medical conditions, self-inflicted injuries and certain stress or back-related injuries.
- Voluntary redundancy, and redundancy you had reason to expect was coming
- Being dismissed for performance-related issues
- Unemployment if you are self-employed
When can you claim mortgage protection?
With most policies you’ll usually need to be off work for a set period before making a claim and receiving a payout.
This is known as the deferred period and could be anywhere between 30 and 180 days. A longer deferred period should be cheaper, but before economising on cover you should look at how you would manage during that time. For the initial weeks and months, you may be able to rely on redundancy payouts or sick pay, depending on your employment contract. However, the longer you have to wait for your insurance payout, the more financially stressful the situation could become.
Getting some expert advice on how to assess your needs might be valuable.
Arranging your mortgage protection
Mortgage protection is not a condition of a lender’s mortgage offer, and you could cut your costs by simply not having it.
However, with your home at risk, you would probably prefer peace of mind for yourself and your family.
Of course, you might prefer the extra benefits of more comprehensive policies, such as general income protection, and critical illness cover, while protecting your loved ones with life insurance.
To get a clear view of the types of cover available, the policies you need to protect your home and your family – and to keep the costs manageable requires expert advice.
At Continuum, we can provide you with the unbiased advice you need. We can discuss your needs and search the entire insurance market to find the cover that is appropriate for you.
None of us knows what will happen tomorrow. To start getting the protection you need to deal with life’s challenges, call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products and you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
