Should I Take Out Mortgage Protection Insurance?
This article at a glance
- How mortgage payment protection works
- Why you might need mortgage payment protection insurance
- Mortgage income payment protection if you’re self-employed
- Cost of mortgage payment protection insurance
Paying off your mortgage is something that can take a lifetime. But over the length of your loan you could face misfortunes that could prevent you from repaying your loan in full.
If you’re taking out a mortgage, you should think carefully about how you would cope in the various scenarios that would mean you losing your usual income. E.g. ask yourself, ‘how would I pay my mortgage if I was off sick long-term?’ ‘What would I do if I was made redundant?’ This is where mortgage protection insurance can offer serious peace of mind.
How does mortgage payment protection insurance work?
There are a number of different products that are often referred to as “mortgage protection,” which include mortgage payment protection insurance (MPPI) and income protection.
Income protection is a long term policy designed to replace a percentage of your income for a set period in the event of sickness or injury. In essence, how it works is as follows:
- Take out a mortgage protection insurance policy
- In the unfortunate circumstance of losing your income through illness, accident, or unemployment you make a claim
Do I need mortgage payment protection insurance?
Lenders don’t usually insist on any other insurance other than building’s insurance, but any expert broker will highly recommend you take it out – to protect you and your family if the unexpected happens.
What your policy covers will depend on the insurance provider and the options you go for – different insurance companies offer varying products. You’ll always be asked what you want to protect. This could include:
You can usually protect up to 70% of your gross salary. Your policy will pay out until you can start working again.
In some cases you could have cover through work with protection built into your employment contract, so it’s worth asking your company for any related policies before signing up to anything new.
Self-employed mortgage protection
Income protection is particularly important for people who work on a self-employed basis. Without an employer, you won’t be eligible to receive sick pay if you become ill. Instead, you will rely on any savings or your partner’s income in order to get by – which can put an enormous strain on a household income. If you’re in this situation, income protection can be essential in ensuring you will always have enough to meet your financial commitments.
What does it cost?
The amount you pay each month will depend on which type of cover you choose, how long you want to be covered for, and the percentage of income you’d like to cover. Other factors that impact the cost are:
- Whether you smoke
- Family medical history
- Your general health
Alongside these products designed to help cover your bills if you face a loss of income during your lifetime, there is life insurance, which could be used to pay off your mortgage if you were to die leaving a partner and/or children.
What is mortgage life insurance?
Mortgage life insurance pays out a lump sum which is sufficiently large to pay off the outstanding debt if you die before the end of the mortgage term. Decreasing term life insurance is the cheapest form of life insurance. As time passes, and your mortgage debt reduces, the pay-out on death also reduces leaving your dependants with the money to pay the rest of the mortgage. We can put you in touch with an adviser who can help you in finding the policy to suit you best.
Next steps for mortgage protection insurance:
There’s lots of help we can offer if you want more advice on getting sorted with mortgage protection insurance.
- Visit our Guides page www.betterchancefinance.co.uk/guides/
- Fill out the for below and one of our brokers will be in touch