Mortgage Payment Protection Insurance is a fail-safe that covers your monthly repayments in case your financial situation no longer allows you to repay the mortgage.
A Mortgage Payment Protection insurance policy helps ensure you don’t default on your payments and your property is not repossessed.
However, you might be wondering if there are other alternatives to this and if there are any better options you can opt for.
In this article, we will discuss everything you need to know about mortgage payment protection insurance. So, let’s get started!
Table of Contents
What is Mortgage Payment Protection Insurance?
As mentioned above, mortgage payment protection insurance is a kind of policy that lets you continue your monthly mortgage repayments in case you’re unable to afford them.
This can be due to multiple situations, such as loss of job, severe sickness, or even accidental injury.
In case you’re unable to earn for a period of at least 30 days, which can extend up to 180 days in special circumstances, the insurance cover pays you a pre-decided amount every month.
This type of policy is designed to cover your mortgage repayments.
However, you’ll only receive this cover for up to 12 months or till you resume work, whichever is earlier with most policies.
Mortgage Protection Insurance Monthly Premium
Monthly premiums for this type of insurance can vary, but you can get plans as low as £10 monthly potentially.
Premiums are usually calculated based on the following factors:
- Mortgage amount
- Your age
- Your salary
- Monthly repayment amount
- Your job type
This last point is important as it assesses your degree of professional hazard. For instance, if you work a desk job, you risk to injury less than a construction worker as an example.
So, a desk worker would look to get insurance at lower premiums, with all other factors being equal.
Types Of Mortgage Protection Insurance
Primarily, there are three types of mortgage protection insurance that you can look into:
- Unemployment Policies, which pay out if you lose your job due to redundancy
- Accidental And Illness Cover, which pays out if you become ill or injured and can’t work
- Combined Policies, which are a combination of both
Note that the above policies are mostly targeted towards salaried individuals. Policy providers who cover self-employed individuals are available; however, these may be specialist providers, and you might need to contact a broker to access them like those we partner with at lending line.
Do You Need Mortgage Protection Insurance?
As you can understand, this type of insurance is not compulsory but depends more on your financial situation.
If you feel that being out of work for any reason can stop you from keeping up with your repayments, it’s best to get one and covered adequately.
In fact, there are several other alternatives to mortgage protection insurance that you might consider using, such as income protection insurance, life insurance, or critical illness coverage.
In that context, income protection insurance usually gives more comprehensive coverage than mortgage payment protection insurance.
Instead of covering just your monthly mortgage payments, it covers a portion of your salary and pays for longer than mortgage protection insurance.
Income protection insurance has higher premiums but can be a lifesaver for people in high-risk professions and as mentioned is not solely centred around mortgage payments but as a percentage of your monthly salary .
Of course, life insurance is a different cover you might be required to take when you get a mortgage. This ensures that the mortgage amount is paid back to the lender in case of your untimely death. This type of insurance doesn’t cover unemployment scenarios.
Finally, critical illness coverage usually pays a lump sum in case you suffer one of the listed critical illnesses detailed on the plan. You can opt for one or more of these options based on your unique situation.
How To Select The Best Mortgage Protection Insurance
The most suitable way usually to find mortgage protection insurance plans for your mortgage needs is through a mortgage advisor as they will advise on these products alongside the mortgage.
They can help you compare policy plans and choose the best one with lower premiums and better coverage.
Do note that similar to income protection plans, mortgage protection plans might not cover you for pre-existing conditions, especially if you’ve been sick the previous year. You might even need to take a medical test.
Frequently Asked Questions (FAQs)
1. When does mortgage protection insurance not cover you?
The following is a list of some of the situations when mortgage protection insurance will not cover you:
- Self-inflicted injuries
- Voluntary retirement
- Getting sacked
- Prior knowledge of redundancy risk
- Pre-existing conditions
- Circumstances not properly disclosed.
Before you sign on the dotted line, read the policy documents carefully to understand what is covered and what is not completely.
Yes, if you’re a smoker or a vaper, you’re deemed a higher-risk customer and will need to pay higher premiums in most cases.
3. Is it mandatory to get mortgage protection insurance?
As mentioned previously, it’s not mandatory to get mortgage protection insurance.
4. What is Support for Mortgage Interest (SMI)?
This is a government scheme that covers the interest on your mortgage. Depending on your situation, the first SMI payment might be delayed by around 39 weeks. Also, these are loans, and you’ll need to pay them back.
5. What is the Deferred Period for mortgage protection insurance?
The deferred period is the waiting period between when you’re first unable to work and the time your payouts begin rolling in. This is usually between 30-180 days and is pre-agreed when taking out the policy.
I am CeMAP & CERER qualified mortgage adviser and have helped a number of clients realise their dreams when they thought it would not be possible. I’m skilled at getting mortgages sorted for people with a history of missed payments, CCJs, defaults, debt management programmes, IVAs and bankruptcies.
