Explaining age related mortgage payment protection insurance
- 17TH JUNE 2007
If anyone had sufficient savings to prevent them from having to worry about how to pay their mortgage if they lost their income, it would be hard to understand why they had a mortgage in the first place.
For this reason it is common for homeowners to take out mortgage payment protection insurance, which covers their mortgage outgoings for up to a year if they become unable to work as a result of accident, sickness or involuntary unemployment.
But, whilst providing valuable peace of mind, this cover also creates a significant additional cost. Even the most competitive specialist mortgage payment protection insurance providers have tended to charge in the region of £4 a month per £100 of monthly mortgage outgoings covered, and major mortgage lenders have been capable of charging half as much again.
One of the main reasons for the high cost is that all policyholders pay the same flat rate, regardless of their age, sex, occupation and smoking habits.
This makes mortgage payment protection insurance attractively simple in comparison to other forms of health insurance, but it also means that those least likely to claim have to pay extra in order to subsidise those most likely to.
However, a revolutionary new mortgage payment protection insurance product launched by bestinsurance.co.uk now charges premium rates according to age.
Once on cover, premiums do not automatically increase as you get older but, as with standard mortgage payment protection insurance, prices are not actually guaranteed to remain unchanged throughout the mortgage term.
Those aged between 18 and 25 who take out a policy can pay as little as £1.60 a month per £100 of monthly cover, or as little as £0.95 a month if they want to take either the involuntary unemployment component or incapacity (accident and sickness) component in isolation.
At the other end of the scale, those aged between 61 and 64, are charged £5.25 a month for the full cover or £3.15 a month if they only want one of the two components.
The new age-related approach is arguably much fairer on younger policyholders. Underwriting data shows that younger people are less likely to suffer from long-term health problems and, if they experience involuntary unemployment, are likely to spend less time finding a new job. So it is logical that they should pay less to insure themselves against the possibility of being unable to work.
Anyone aged below 50 will have to pay less that they would under a standard mortgage payment protection insurance product with a competitive specialist provider.
But the cover is not necessarily suitable for everyone, because it contains the same significant exclusion clauses that are present in all mortgage payment protection insurance policies.
Self-employed people, for example, are not covered for involuntary unemployment unless they actually cease trading altogether, as opposed to merely experience a lean patch.
Medical conditions that you have had before you take out your mortgage payment protection insurance policy (so-called “pre-existing conditions”) are also excluded, although this exclusion is waived if you haven’t suffered from that condition for two years before the first date on which you became unable to work.
Nevertheless, the fact that premiums are so competitive for younger homeowners means that many people with significant pre-existing conditions could still find the product good value, even though they realise they will not be covered for everything.
