Mortgage payment protection insurance advice
MORTGAGE SOLUTIONS - 20TH JUNE 2005
My clients are second-time buyers who have missed a couple of mortgage payments in the past. The main earner is recently self-employed so they have opted for a two-year fixed rate self-certification product. They need information about appropriate mortgage payment protection insurance cover.
Mortgage payment protection insurance is a sensible insurance to consider because what the client needs to do is to find a way to protect their income. Clearly the greatest risk to which they are exposed is having an accident, falling sick or becoming unemployed.
The unemployment element in the traditional accident, sickness and unemployment policy would be worthless because of the client’s recent move into self-employed status. All the insurers who underwrite the unemployment element of this cover make great efforts to limit spurious claims being made upon it and so they employ strict limitations on when it can apply. Self-employed policyholders find it difficult to prove their period of incapacity was involuntary. This usually means claims can only be considered once someone is forced out of work because of something like liquidation, which is outside the policyholder’s control.
Because of such restrictions the unemployment part of the cover is not worth much. Therefore, it would be much better advice to redirect the premium that would otherwise be used to fund the unemployment cover into a short-term disability policy – accident and sickness – and then back that up with a permanent health insurance (PHI) policy that contains an up-front waiting period. That should ensure that the couple will still have an income if the main earner cannot return to work quickly following a period of sickness.
Mortgage payment protection insurance is of little or no value to the couple described above. With respect to the secondary earner, they can take out mortgage payment protection insurance cover – but only for a proportion of the mortgage payments. If the person only earned one-third of the household income then the policy can only cover one-third of the mortgage. Taking out a PHI policy may not be relevant for the secondary earner – especially if it is a woman who may be considering having a family in the short term, as it may not meet her needs and could be expensive.
