Mortgage payment protection cover explained
- 15TH JUNE 2007
For those who are already feeling the financial pinch, interest rate rises only go to worsen their position says Simon Burgess, MD of British Insurance. Whilst these interest rate rises might slow down the housing market and price rises and help those trying to get onto the property ladder they do not help those already on the ladder and trying to meet monthly mortgage payments.
Those who have just managed to get a foot hold on to the housing ladder may have already put in all the spare money they have in order to scrape up the deposit and purchase the house plus met the purchase costs, legal costs, moving in and furniture. Some may even be facing the risk of over committing themselves.
Now whilst those problems can bring stress what would happen if at the same time you found yourself unemployed or unable to work with no income coming in.
Mortgage payment protection insurance offers some protection in this area. No insurance policy covers everything but mortgage payment protection does offer a fair level of cover at a low price provided the policy suits your situation.
Mortgage payment protection insurance typically offers monthly benefits which can pay out for a maximum period of twelve months. Some policies will pay out for longer periods but 12 months is a typical maximum benefit period. So does not cover the whole of the mortgage period but 12 months will cover a lot of eventualities.
The policy pays out, subject to the cover terms, if as a result of injury, illness or involuntary unemployment you are unable to work. The benefit level, subject to any maximum limits, is usually set to equal the monthly mortgage repayment (capital and interest combined) plus related costs such as house hold insurance and term life insurance premiums.
By necessity the government limit what assistance is automatically available through assistance. Those with a full time working partner, savings of over £8,000 will be unlikely to be eligible for help. Those who have taken out a mortgage since October 1995 will not be eligible for assistance for the first nine months and then only for interest and not capital repayments, and the interest will only be calculated on borrowings of up to £100,000.
The cost of mortgage payment protection insurance can vary and you need to be aware that there is no compulsion to purchase the cover from your mortgage provider or mortgage arranger. Some of those deals are no where near as competitive as those available in the open market and especially on-line. Please remember that if you intend to keep mortgage payment protection insurance going for the length of you mortgage then any savings you make could add up to a significant amount over time.
But do not look just at the premium cost. Also compare cover. Some policies will not pay out until you have been off work for in excess of 60 days and then the payments only start counting from day 61. Others will start counting the payment days from day one but unless you are off work for more than 30 days then they do not pay but if you are off for 31 days then you get the benefit amount counted from day one.
Mortgage payment protection policies like other insurance have exclusions and restrictions in cover. The following are just two examples.
All exclude pre-existing conditions. That is medical conditions which you had or should have been aware of prior to the mortgage payment protection policy incepting. Some policies will reduce this exclusion if you have been treatment and symptom free for two years. You would need to read the actual policy exclusion to be certain if this was important for you. Most will also exclude chronic conditions in addition.
The self employed are usually only covered if their own businesses have to be wound up and ceased trading. You would need to read the actual policy wording to see how onerous such a requirement might be for you.
