Many believe benefits will cover mortgages
FINANCIAL ADVISER - 12TH APRIL 2002
A fifth of mortgage holders maintain the unfounded belief that state benefits will cover their mortgage payments if they are unemployed.
An ABI survey has found that 20% of the population believe they can rely on the government for financial assistance if they are unable to work.
But state benefits to support mortgage repayments are means tested and many home owners could find themselves out in the cold. A home owner may qualify for income support, but if they took out a mortgage after October 1995 they would have to wait nine months before state repayments kicked in.
Those with loans that precede October 1995 and qualify for income support would receive nothing for the first two monthly only 50% for the next four months and then full payments for mortgages up to £100,000.
However, it is estimated that more than 70% of all mortgage borrowers would be ineligible for income support because of savings, a working partner or income from other sources.
But there are now at least two new products aimed at filling the gap left by means-testing.
Halifax, has lunched the Total Mortgage Protection Plan which is heralded as the next generation protection product for mortgage borrowers.
TMPP offer Halifax policyholder the choice of life Assurant, critical illness cover and accident, sickness and unemployment cover – or a combination of all three. Policyholders can adjust the level of cover as often as thy like, free of charge. They can also take the plan with them if they change their home or mortgage.
Keith Abercromby, general manger of long-term savings for Halifax said: “The product is unique, all encompassing and most importantly, totally flexible. We believe TMPP will become the industry standard.”
But other products provide greater financial security.
Simon Burgess, managing director of general insurance broker Burgesses, said the Halifax plan only covered mortgage-related costs.
Mr Burgess said: ‘Even when claims are paid, benefits are wholly inadequate and will not pay for basic needs such as food, clothing or travel costs to seek work. It does not address the need for consumers to receive adequate income protection.”
Protection specialist Burgesses has just launched Shelter which offers income protection against unemployment and disability. It provides 75% income replacement on gross earnings for up to two years.
Applicants can select up to £2500 of cover. It claims to provide £1000 a month of cover against unemployment costs for only £25 a month if payable for 12 months or £30 if benefits are to be paid for two years.
It is not necessary to have a mortgage to buy Shelter. Burgesses, claimed it can be used for rent, loans, household bills or any other purpose.
Ronald Bowes, owner of IFA Ronal Bowes & Partner, said many mortgages would find the one-stop approaches to income and mortgage protection helpful. He said: “People will find it easier to fill in one form than take out different cover separately.”
