Make sure your mortgage protection is up to scratch
THE SUNDAY TELEGRAPH - 13TH JUNE 2004
Millions of homebuyers are paying for mortgage payment protection insurance and income protection policies which they either don’t need or cannot claim on.
For instance, I have an income protection policy that is supposed to pay a fixed monthly amount for up to two years if I am unable to work through sickness or disability. But these payments cease at age 65. So if I were to fall ill at say 64, the benefits would be paid for just one year, and I will have been paying for a lease one year’s cover that I can never claim.
Everyone coming up to retirement should review their mortgage payment protection insurance and income protection policies, says Simon Burgess of Burgesses, and mortgage payment protection insurance specialist. Some policies pay benefits only up to age 60, which means it is clearly a waste of money paying premiums in the year leading up to your 60th birthday.
Insurers appear to be relying on ignorance and apathy to con us into paying for something we can never receive. Why the insurance industry doesn’t do something to remedy this ridiculous situation is difficult to understand.
This is only one of the things to watch out for when buying income protection or mortgage payment protection insurance. The vast amount of these policies is sold through mortgage lenders which make huge profits from the commission they receive on the sale. There are much cheaper, and better, policies available directly from insurance brokers.
All mortgage payment protection insurance policies include exclusions for pre-existing medical conditions, which must be declare when you take out the policy. Lenders’ policies are generally not portable, which means that, if you move your mortgage, you will have to take out a new policy. If you have been ill in the meantime, you may not be able to obtain cover.
Many lenders’ policies also have a 60 day exclusion period, which mean you get nothing if you are off work through sickness for fewer than 60 days. Nowadays, even people with serious illnesses can be back at work within six to eight weeks, which means that most will never be able to claim sickness benefit.
A good mortgage payment protection insurance policy allows you to claim after 30 days and once the claim has been accepted, the benefits will be backdated to the first day of sickness.
Income protection is a better bet than mortgage payment protection insurance in any case as you are covered for a fixed amount of outgoings each month with no restriction on what the money is used for. This is useful because it can cover overheads like gas, electricity and telephone bills as well as mortgage repayments. You don’t even have to have a mortgage to qualify.
These policies are complicated. For example, many self-employed individuals are sold unemployment cover, which is simply a waste of money as you normally have to be declared bankrupt before you can claim. Very few self-employed people are prepared to do this because of the consequences for the credit rating.
The answer is to buy mortgage payment protection insurance for income protection through a good broker. Good accident, sickness and unemployment cover which is fully transferable is available for £3.95 a month for every £100 of income covered, with benefits payable for a year, or for a slightly higher premium for two years.
You definitely should not be paying more than this. Check your policy. If you bought through one of the mortgage lenders you will probably be paying a much higher premium.
