What is mortgage protection insurance cover?
- 19TH JUNE 2007
It is hardly surprising that many homeowners are unclear as to whether or not they need “mortgage protection insurance cover”, because the term is commonly used to refer to a number of separate products that fulfil very different functions.
Many people use it to describe life insurance - which pays a lump sum upon death - when it is taken out specifically to protect a mortgage.
But it can also refer to mortgage payment protect insurance, which typically covers regular mortgage outgoings for up to a year if you lose your job or are not well enough to work.
Just to make matters even worse, a further product known either as payment protection insurance or accident, sickness and unemployment cover is sometimes tagged with the same label as well. This works along similar lines to mortgage payment protection insurance but can be linked to loans other than a mortgage.
With all these products the question that really needs to be asked is whether you can actually afford to be without them.
Try and work out what state your family finances would be in should an unthinkable scenario such as death, disability or serious illness occur.
Don’t try to hide behind the idea that “these things only happen to other people”, because any number of statistics will tell you that “other people” are far too numerous for comfort.
At the same, time, however, don’t forget to take into account any life insurance cover or sickness benefits you might be entitled to through the workplace. If you are unclear about these then your HR department should be able to set you straight.
Life insurance can pay off the mortgage if the policyholder dies, so there can be few homeowners with partners or children who don‘t need it.
But it may not actually be necessary for someone without dependants unless their mortgage lender insists on it - which only a minority of lenders now do.
Being single does not, however, prevent you from being responsible for meeting your mortgage outgoings if you get made redundant or find yourself unable to earn a crust as a result of accident or sickness. You may therefore need mortgage payment protection insurance.
In practice most homeowners don’t have sufficient savings tucked away to pay their mortgage for very long and, contrary to poplar belief, few will qualify for any State help in their hour of need.
Without mortgage payment protection insurance, it is therefore easy to find yourself worrying about having your home repossessed at a time when you have quite enough problems on your plate already.
Nevertheless, the competitiveness of the provider you buy from can be a major determinant of whether a product constitutes good value.
So for both mortgage payment protection insurance and life insurance, it is important to realise that you are under no obligation to buy from your mortgage lender.
Banks and building societies can represent extremely poor value for both products, but their clients incorrectly believe that going elsewhere could jeopardise their mortgage deal. It is a mistake that can cost them thousands of pounds over the mortgage term.
