Protection Money – You won’t lose your home if you lose your job, providing you have mortgage payment protection insurance
YOUR MORTGAGE - 1ST AUGUST 2004
Buying a home can sometimes seem like a license to flush money down the drain.
Surveyor’s charges, solicitor’s fees and searches all add up alarmingly quickly. And then you’re presented with a range of varied and often baffling insurances. Buildings insurance is compulsory unless you are buying a leasehold property (and is paid at exchange of contracts). Contents insurance is highly recommended and life assurance is a good idea if you have dependants to look after. But what if mortgage payment protection insurance and why should you consider paying for it?
Mortgage payment protection insurance pays your monthly mortgage payments for a specified period (usually a year maximum) should you be unable to do so because you have been made redundant, had an accident or developed an illness which has left you unable to work.
As with any insurance policy you will hopefully never need it, but it could be invaluable if your fortunes take a turn for the worse.
Get covered
Almost one million mortgage payment protection insurance policies were sold or provided free in 2003, according to the Council of Mortgage Lenders, which says in total 36% of all new loans advanced last year were protected by mortgage payment protection insurance.
It seems more people are realizing the benefits of protecting their mortgage payments and they’re paying less for it. Figures from the CML show that the average cost of mortgage payment protection insurance has fallen by 12 per cent over the last six years – the average policy now costs £4.95 per £100.
The thing about mortgage payment protection insurance is the more you stretch your finances to make your repayments the less likely you are to be able to afford the insurance payments. Full cover for accident, sickness and redundancy on a mortgage with monthly payments of £600 mortgage will cost you a further £30 a month. But the more you stretch yourself, the more you need to cover your payments. After all, if you are spending most of your income each month then you are not going to be putting much cash away to give you a savings cushion.
It takes two
When you take out an mortgage payment protection insurance policy you will be able to state the amount you want to be insured for. So, for example, if your mortgage payments are £600 a month, but you would like to receive more money to cover other costs if you have to make a claim, then you can pay to cover yourself for, say, £800 this increased cover will be reflected in higher monthly premiums.
If you have a joint mortgage with someone else, the mortgage payment protection insurance can be set up so that it covers both of you, by allocating a proportion of the cover to each person (for example 50/50 or 60/40). If one person needs to claim, the amount of the benefit payment will be the proportion of the mortgage payment protection insurance allocated to that person. Simon Burgess, managing director of Burgesses insurance, says “People are generally happy to have split cover, but about 95 per cent of the policies we sell are to cover the main income earner. I would recommend couples each take a policy to cover 100% of the mortgage payments. After all, circumstances can change.”
So don’t dismiss mortgage payment protection insurance as an unnecessary cost when you buy a home, and remember to shop around. Work out how much you will have left to spend after your monthly mortgage repayments and decide how much you are willing to pay for peace of mind.
We face it, you do not buy this cover if your job is as safe as houses.
