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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.
We will cover frequently asked Mortgage Protection Insurance questions such as:
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 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.
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:
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.
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.
There are several scenarios where mortgage protection insurance may not be able to cover you:
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:
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.
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.
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.
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