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Mortgage Protection Insurance – Ultimate Guide

If you are a homeowner, the thought of not being able to pay your mortgage and the risk of losing your home is probably something of a nightmare. No home would mean no safe -haven for you and your family, as well as the loss of something you have no doubt worked extremely hard to achieve.

If the inevitable happens, you want to make sure you have something in place to protect yourself, your family and your asset that you have worked so hard to achieve, and this makes mortgage protection insurance is such a popular policy. Not only will it cover the cost of your mortgage payments if you are unable to meet them, perhaps due to an accident, illness or loss of employment, but it could also pay off your mortgage completely if you were to suddenly, (we’ll put it bluntly) drop-down dead. Nobody likes to talk about death, its morbid and it’s scary, but unfortunately, it’s a fact of life that will eventually come to us all.

Through a good mortgage protection insurance policy, you can ensure your family will not face the threat of losing their home, should you the worst-case scenario land at your doorstep.

We understand that protecting your home is an important task to achieve, one which you want to get right and one that can leave you feeling confused!

This guide to mortgage protection insurance will explain what you need to look out for when choosing your policy, so you can sleep at night with a peace of mind that yourself, your family and your most treasured asset is protected.

Mortgage Protection Insurance – What is it?

Mortgage protection insurance is also commonly known as Mortgage Payment Protection Insurance (MPPI) and it provides cover should you be unable to make your monthly mortgage repayments.

There are several reasons you could be in a position where you are unable to cover your mortgage. You could fall ill or have an accident, preventing you from being able to work, or you could be made redundant with very little redundancy pay out. Whatever the case, your mortgage will need to be paid otherwise you run the risk of losing your home.

Mortgage protection insurance will therefore offer you the reassurance that in any of the above events, your mortgage repayments will be covered for a certain amount of time, allowing you to get back on your feet without the worry of how you will keep a roof over yours and perhaps your families head.

Mortgage Protection Insurance
– Why do I need it?

The government may give some support to individuals who are unable to make their mortgage repayments, known as SMI benefit, however, not everyone is eligible. This means without a good mortgage protection insurance policy in place, you run the risk of having to sell your home should you not be able to make the repayments.

Regardless of whether you are eligible for support from the government, it will usually only cover the cost of the interest on your mortgage. A mortgage protection insurance policy could cover both the interest and the repayment costs, meaning you will be in a much better position.

It is not a legal requirement to take out a mortgage protection policy, and although it may be one more direct debit to add to your bank account, at least you know your home is protected in all eventualities and there is no possibility of yourself and your family potentially facing homelessness.

You should consider taking out a mortgage protection insurance policy if:

  • mortgage-protection-insurance-green-bulletYou would struggle to pay your mortgage if you were unable to work due to illness, accident or forced unemployment
  • mortgage-protection-insurance-green-bulletYou are self-employed and therefore not entitled to sick pay or redundancy

Mortgage Protection Insurance –
How does it work?

Generally, a mortgage protection policy will start to compensate you between 31 and 60 days after you are unable to work. You can however opt for a ‘back to day one’ policy which will backdate the monies you receive to cover you for the first day you were out of work. It is important to bear in mind however that this type of policy is usually more expensive.

Most policies will limit the period they will be willing to pay out for and this can range from 6 months up to 2 years, although it varies between different providers. Usually insurance providers consider 2 years to be an appropriate amount of time for you to have recovered from an illness or found new employment. You can of course take out policies that pay out for shorter periods, say 3 months, and the premium will probably be significantly lower.

The payments you receive are also usually capped, normally between £1,500-£2,000 a month. If you have a large mortgage, it is therefore important you consider how you will cover any surplus.

Once you make a claim with your insurance provider, your provider will usually send the money directly to your mortgage lender, however some policies will send the money directly to you. You should discuss this with your mortgage protection insurers.

Mortgage Protection Insurance
– How much does it cost?

Often, a mortgage protection insurance policy is taken out at the same time you secure your mortgage, usually offered by your mortgage lender. You may be tricked into believing that the policy is a necessity, which to some extent it is, if you want to protect your asset. However, it is not a legal requirement and you should be wary that you do not have to take out the policy with your mortgage provider, or a company associated with it.

It is usually a cheaper option to take out a mortgage protection policy with an independent provider, and you should consider comparing the best deals on the market via a comparison website.

Here at Utility Saving Expert, you can do just that by filling in a short form here. We will be able to find not only the best deals on the market, but also the appropriate policy to suit your individual requirements.

To get an idea of how much a mortgage protection policy will cost, you will need to work out how much your monthly repayments are and whether you wish to include cover for other essential expenses, such as utility bills. Not all insurance providers will be able to cover you for bills as well as mortgage repayments, however it is worth considering if this would benefit you and discussing your options with your provider.

If your mortgage repayments are high, then you should expect your premium to be more expensive, unfortunately this is just the way it goes. There are however certain steps you can take to reduce your premium where possible, like for example setting a longer ‘excess period,’ which is the length of time you need to wait after you have stopped work before the insurance beings to pay out. The longer the excess, the cheaper your policy.

Your premium will also depend on other factors such as your age, the type of policy you require and levels of cover you wish to include as well as your health.

Mortgage Protection Insurance – Exclusions

There are several scenarios where mortgage protection insurance may not be able to cover you:

  • mortgage-protection-insurance-green-bulletIf you are off work because of an ongoing medical condition you knew about when taking out the policy – regardless of whether you were seen by a doctor, or for a persistent medical condition that returns in the first 12 months of the policy, you may not be covered. You should speak to your insurance provider regarding any illnesses or medical conditions you have currently, before taking out any policy
  • mortgage-protection-insurance-green-bulletMortgage protection insurance does not cover you if you are pregnant, so you should ensure you have other means to continue paying your mortgage when you are on maternity and until you go back to work, if you choose to do so
  • mortgage-protection-insurance-green-bulletIf your pregnancy carries any medical complications, then you may be able to receive cover, but you should talk to your insurance provider regarding your options
  • mortgage-protection-insurance-green-bulletStress and back related injuries are two of the most common reasons for workers being unable to continue working. Because they are so common, most insurance policies will not offer cover if you are not working due to these reasons
  • mortgage-protection-insurance-green-bulletIf you resign, take voluntary redundancy or are sacked from your job role due to misconduct, mortgage protection insurance will usually not be able to offer you any cover. Again, you should speak to your insurance provider regarding your circumstances
  • mortgage-protection-insurance-green-bulletIf you become unemployed within the first 60 days of taking out your mortgage protection insurance policy, you may struggle to get cover. Speak to your insurance provider regarding your options
  • mortgage-protection-insurance-green-bulletIf you are a seasonal worker or on a temporary, casual or zero-hour contract, you will usually not be eligible for cover
  • mortgage-protection-insurance-green-bulletIf you have a chronic long-term illness that is unlikely to be treated or cured
  • mortgage-protection-insurance-green-bulletIf you own your home outright, there will be no need to take out a mortgage protection policy as you will not have the need to make any payments

Alongside the above, there are also several scenarios when a mortgage protection insurance policy may not be suitable. The most obvious is if you have alternative cover, or you are lucky enough to have enough savings or another way to support yourself and keep up with your mortgage payments.

You may not need a mortgage protection policy if:

  • mortgage-protection-insurance-green-bulletYou have an income protection insurance policy already in place. This policy will cover your income should you be unable to work; therefore, you should be able to continue with your mortgage repayments as usual. You can find out more about income protection here
  • mortgage-protection-insurance-green-bulletYou have a good sick pay policy, enough which would cover you should you fall ill. You should consider the amount of time your employer will pay you for, and if it will cover your mortgage as well as other bills. If you feel it is adequate it might be a good idea to tailor your mortgage protection insurance policy to only cover you in the event you are made redundant
  • mortgage-protection-insurance-green-bulletYou would be eligible for a generous redundancy pay out that would cover you until you found another job
  • mortgage-protection-insurance-green-bulletYou would be entitled to government benefits and they would allow you to live as comfortable as possible as well as pay your mortgage

Although there are many benefits to a good mortgage protection insurance policy, you should always read the small print and consider any other cover you might have in place. Doubling up on cover without realising can be an expensive mistake – the last thing you want to do is be paying for something you don’t need.

Mortgage Protection Insurance
– Other points to consider

It is important to note that if you receive any income-related benefits, and you make a claim through your mortgage protection insurance policy, any pay-outs may affect your entitlement to some benefits. You should therefore consider contacting the correct benefits department, to discuss your potential change in circumstances.

If your policy pays your lender directly, this might not have an affect on your entitlement, so if you do receive income-related benefits you may want to check the terms and conditions of your policy before entering into any agreements.

You should also be aware that if you re-mortgage at any point, you will also have to increase the level of mortgage protection cover, otherwise your policy may be invalid, and you will be unable to make a claim.

Some policies will also offer you the option of having your mortgage paid off for you, should you die. This is usually added as an additional extra an may increase your over all premium, you may also be covered through certain work place policies, such as the ‘death in service’ policy which will pay your partner or family up to around 5x your salary.

In this instance, you may want to consider whether this additional extra will be right for you, as the death in service payment could already cover it.

Compare Mortgage Protection Insurance

You should now have all the necessary information you need to help you choose the right policy and level of cover for your mortgage protection insurance. Use Utility Saving Expert’s online comparison tool to help you find cheap mortgage protection insurance.

Mortgage Protection Insurance

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Mortgage Protection Insurance Disclaimer

Utilitysavingexpert.com Ltd uses mortgage protection insurance quotation technology provided by SEOPA Ltd to enable you, the user to obtain multiple quotes. These mortgage protection insurance quotes are sourced from a carefully selected panel of mortgage protection insurance providers. SEOPA Ltd are authorised and regulated by the financial conduct authority (313860) and their permitted business is insurance mediation.

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