Fortunately, there are steps you can take to ensure that you’re safeguarded against any unforeseen circumstances that would prevent you from paying your mortgage - including taking out mortgage payment protection insurance.
What is mortgage payment protection insurance?
Mortgage payment protection insurance (MPPI) is a type of income protection that covers you should you find yourself unable to work due to job loss, ill health, or an accident. This can prevent you from defaulting on your monthly payments, and the subsequent repossession of your home.
There are varying levels of mortgage payment protection insurance available, and these vary depending on what you want to be covered for. These include ‘unemployment only’, ‘accident and sickness only’, and ‘accident, sickness and unemployment’. The level of cover you opt for will help determine the cost of the premiums, so it’s important to choose the cover that best suits your circumstances. important
As with any insurance policy, it’s that you read the small print carefully to make sure there are no exemptions that may impact you.
Why would I need mortgage payment protection insurance?
Mortgages serve as the biggest monthly outgoing for the majority of homeowners, and a logical solution to ensure you can keep paying this on time each month, if circumstances were to prevent you from doing so, is to take out mortgage insurance - especially if you have a sole or low joint income, or don’t have any savings to fall back on. It’s also useful if you are self-employed and wouldn't have any sick pay or a redundancy package to rely on.
Can I take a mortgage payment holiday instead?
While mortgage payment holidays have become increasingly popular, it’s important not to view this as an alternative to mortgage insurance.
Mortgage payment protection insurance will only be paid out after you have successfully made a claim, so you can continue to pay your mortgage on time each month. In contrast, a mortgage payment holiday means you are deferring paying on what you owe, and this could potentially impact your credit score, as well as future lending decisions.
How much does mortgage payment protection insurance pay out?
Mortgage payment protection insurance covers the cost of your mortgage in the event you need to make a claim, with most policies typically paying out for any time between 12 months and 2 years. You can choose for the policy to pay out more than the cost of your mortgage, so other bills are covered, or you can opt to receive a proportion of your salary. However, there’s usually a minimum period that the policy is required to have been in place for before either of these can be arranged, which we’ll go into more detail on below.
As always, bear in mind that the level of cover you choose will have an impact on the cost of your 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.
With this in mind, evaluate your own circumstances. If you’re entitled to sick pay from your employer, take this into account when deciding how long you want for the waiting period to be. It’s also possible to take out a policy which doesn’t have a waiting period prior to making a claim. Whichever policy you opt for, make sure to do your research and read the small print before making any executive decisions.
What other types of protection are there?
In addition to mortgage payment protection insurance, there are a range of insurance products out there that offer protection against a range of circumstances.
If you’re unable to work due to accident or illness, this policy pays out a proportion of your salary each month. It’s also worth noting that income protection policies typically pay out for a longer period than MPPI. While policies vary, they may pay out until you are able to return to work or reach retirement.
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 policies are worth considering if you have dependents, as they pay out a lump sum in the event of your death. You can decide exactly how it’s paid out, whether this is to cover mortgage or rental payments, or to provide your loved ones with an inheritance.
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 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.
Feel free to get in touch here.
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