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Mortgage Protection

There’s no avoiding it – we should all examine our need for mortgage protection cover (MPPI) as it seems no-one will escape the chill of the recession.

If you fall into financial difficulty and can’t pay your mortgage, most lenders will only give you three months grace before commencing repossession proceedings. Although lenders are under pressure to ease off this timetable a little, there are no guarantees.

What is mortgage protection cover?
Who needs mortgage protection cover?
Mortgage protection cover – key features
What are the downsides of mortgage protection cover?
Getting the right policy for your needs
Mortgage protection cover: What it isn’t

What is mortgage protection cover?

Mortgage payment protection is a policy which pays out a monthly sum to cover your mortgage if you can’t work due to illness, injury or redundancy. It is also known as accident, sickness and unemployment cover (ASU).

It’s different from many other types of cover, such as income protection, as it will only pay out for a period of 12 months (24 months in some cases) so should only be seen as a financial stop-gap until you get a new job or recover from ill-health.

The government has proposed a scheme to allow families to defer part of their mortgage payments for two years if the main breadwinner has lost their job. However, the Homeowner Mortgage Support Scheme is short on detail – it’s not clear who will qualify. And you will still have to find the money to cover all your other bills and living costs. Once you are back in employment, the interest will have compounded and added to the overall mortgage debt.

Accident, Sickness and Unemployment Cover typically costs £4.71 a month for every £100 of monthly benefit.  This is based on a 36-year-old customer choosing £850 of accident, sickness and unemployment monthly benefit with claims paid after a 30-day deferred period.

The cost of this insurance depends on a number of factors, such as your age, where you live and your occupation. As a result, the cost you will pay is based on your own circumstances.

 

There are other providers of Short-Term Income Protection and other products designed to protect you against loss of income. For impartial advice about this type of insurance, please visit the website www.moneyadviceservice.org.uk

 

 

Who needs mortgage protection cover?

It is suitable for people who work for a living and need to cover their mortgage payments if they cannot work for some time.

If you lose your job or can’t work due to ill-health, you’ll have to wait nine months before you would even be eligible for state benefits to cover your monthly mortgage interest. Bear in mind that you will be means-tested. So if you have a partner who earns enough to cover the mortgage or you have savings, you will not be entitled to state help.

Don’t confuse mortgage protection with life insurance as mortgage protection does not provide a payout in the event of death. If you have dependents you should make sure you have adequate life insurance outside of any mortgage protection policy.

Mortgage protection cover – key features

You are under no obligation to take out mortgage payment protection from your mortgage provider at any point, including when you are taking out a new mortgage. Select Mortgage Solutions can compare many different companies to get you the best deal.

The cost of cover is not governed by issues like health, age and whether you are a smoker

Mortgage payment protection usually pays out for 12 months, but policies which pay out for 24 months are available

Mortgage payment insurance is different from mortgage life insurance which insures your mortgage in the event of your death

You can add extra cover for regular bills as well, with some policies.

What are the downsides of mortgage protection cover?

Mortgage protection is not designed to pay your mortgage during its entire term – just 12-24 months (depending on the individual policy) if you are unable to work.

You won’t be covered if you take out a policy after you have been told there is a risk you could lose your job or if your employer has said it’s planning redundancies

There is usually a period of around three months from taking out the policy before you can make a claim on it – this is the “qualifying period”

There is usually a period between making a claim and getting your first payment – this is the “deferred period”

An income protection policy may offer better cover for you, depending on your circumstances

In the event of illness, many employers will give you sick pay beyond the statutory requirement – this means that you may not need the MPPI to kick in before you have recovered, ie you may find yourself over-insured

The devil is in the detail – you must read the small print so you know what is and isn’t covered, ie dangerous sports, existing medical conditions, if you are self-employed etc.

Does not cover pre-existing medical conditions

There may be exclusions or conditions that apply depending on the nature of your work

Getting the right policy for your needs

There is a multitude of life and protection products available of which mortgage protection is just one. It’s important to get the right policy, or mix of policies, for you.

This will differ according to whether you have dependents and whether your family has other sources of income. You also need to identify the areas where you are more likely to need protection in the future. The cost of each type of cover can vary enormously and some forms of life insurance depend on your health and lifestyle. Select Mortgage Solutions can review your protection needs and get the right policy/policies for the best cost.

Mortgage protection cover: What it isn’t

It’s easy to get confused by all the different types of life cover and protection policies, but remember mortgage protection cover is not any of the following:

Life assurance: Pays out a sum to your dependents on your death

Critical illness cover: Pays out a lump sum if you contract a critical illness, a list of which will be outlined in the policy documents. This can be used for any purpose ie paying off all/part of a mortgage, paying other bills, paying for non-NHS treatment. Critical illness cover can be expensive.

Income protection or permanent health insurance: Based on a medical questionnaire, occupation, age and other risk factors this is a policy which pays around 50%-65% of your income if you can’t work due to illness or accident.

It does not cover you for redundancy, but you can bolt this on as an extra, at extra cost. Income protection can be expensive, particularly if you are considered a high risk. But unlike the fixed term of a mortgage protection pay-out, it will pay out until you can return to work.

For further information on the risks and exclusions relevant to these protection policies, please speak to one of our qualified Insurance Consultants.

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Typically a fee of £495 will be charged upon mortgage application but the exact amount of this fee will be dependent on your circumstances. Please contact us for full details.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Select Mortgages Solutions,
Regents Pavillion,
4 Summerhouse Road,
Northampton,
NN3 6BJ

Tel: 0845 22 42 162
Email: info@selectms.co.uk

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Select Mortgage Solutions is an appointed representative of Stonebridge Mortgage Solutions Limited which is authorised and regulated by the Financial Conduct Authority.
 
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