With the pandemic may have come concerns about how you’ll continue to pay your mortgage if you’re made redundant or can’t work due to sickness? Don’t worry, there are actions you can take to protect yourself. One way of doing this is to take out mortgage payment protection insurance. Here’s what you need to know.
Why would I need Mortgage Protection Insurance?
For the majority of homeowners, their mortgage is their biggest monthly outgoing. It is sensible to protect yourself if losing your job or not being able to work due to an illness or accident means you’ll struggle to keep up your monthly payments each month. If you live by yourself and don’t have savings to fall back on it may be particularly important. Equally, if you live with a partner who does work but you can’t manage on their income alone, it may be a good option.
There are varying levels of mortgage payment protection insurance available depending on what you want to be covered for. These are ‘unemployment only’, ‘accident and sickness only’, and ‘accident, sickness and unemployment.’ The level of cover you take will help determine the cost of the premiums. So, it is important to choose the cover to best suit your circumstances.
However it is important to bear in mind that due to the pandemic, some insurers have added Covid-related exemptions to their policies, so make sure that to check before taking out any protection. Many providers have also begun to cover people who are self-employed. However, it’s always important to make sure you check the small print carefully to make sure you’re not exempt.
Can’t I take a mortgage payment holiday instead?
Mortgage payment holidays have become increasingly popular at the moment due to the impact of Covid on peoples finances. But it’s important not to see being able to take a payment holiday as an alternative to MPPI.
Mortgage payment protection insurance is a policy that pays out after successfully making a claim, so you can continue to pay your mortgage each month. In contrast, a payment holiday means you are deferring paying on what you owe.
Also, you may be able to take a payment holiday due to Covid right now and may continue to be able to do so for the next few months as the scheme has been extended. But it is important not to assume this will continue to be the case as we now move forward into 2021.
There are also other consequences to consider of taking a payment holiday too. For example, while the advice from the FCA is that a mortgage holiday will not affect your credit record, it could affect future lending decisions.
How much does mortgage payment protection insurance pay out?
Mortgage payment protection insurance is there to cover the cost of your mortgage in the event you need to make a claim. And these policies will typically pay out for up to two years. Although you can choose for the policy to pay out more than the cost of your mortgage so other bills are covered too. Alternatively, you can opt to receive a proportion of your salary. Again, the level of cover you choose will have an impact on the cost of premiums.
When do I get the money?
You’ll usually need to be off work for a specified number of days before the policy starts paying out. This can range anywhere from 30 to 180 days. The longer the period you’re prepared to wait, the cheaper the policy will typically be.
So, evaluate your own circumstances. If you’re entitled to sick pay from your employer, bear this in mind when deciding how long you’re happy for the waiting period to be. However, it is possible to get ‘back to day one’ policies which don’t have a waiting period before you can claim.
What other types of protection are there?
Income protection
If you’re unable to work due to accident or illness this policy pays out a proportion of your salary each month if. Income protection policies typically pay out for a longer period than MPPI. Policies vary but they may pay out until you are able to return to work or reach retirement. Income protection tends to be more expensive than MPPI.
Critical illness cover
In the event that you're diagnosed with a serious illness critical illness cover will pay you a tax-free lump sum under your policy. You could use a lump sum to either service the payments on your mortgage, or pay it off completely, depending on the amount you receive.
Life insurance
These policies will only pay out if you pass away. But are absolutely worth considering if you have dependents as they pay out a lump sum.
Who should I talk to?
Life can throw curveballs at us when we least expect it, so it’s really important to have a plan in place in case things go wrong.
If you want to find out a bit more about protection and insurance policies, whether it be against illness, accidents or losing your job, our expert protection advisers will be happy to help. For insurance business, we offer products from a choice of insurers.
Feel free to get in touch here.