Mortgage protection insurance
Mortgage Protection Insurance is the safety net that is used when accident, sickness or unemployment cause you to lose your income.
It is all too easy for you to take your income for granted and very few of us actually think what might happen if it suddenly stopped, how would you pay your monthly mortgage repayments?
how long would your savings last to keep up those payments?
If you have limitless savings you may survive without the need for mortgage protection but most of us have not and without them your home is at risk if you were to suddenly lose that income. New standalone mortgage and income protection providers such as Antinsurance have now produced flexible and affordable mortgage protection that will act as your safety net should the worst happen.
Mortgage Protection Insurance, what is it ?
Simple question to answer, it is a protection product that pays out a monthly benefit for a maximum of one year that can cover both your capital and interest repayments and often other mortgage outgoings such as premiums for insurance policies if you lose your income through accident, sickness or unemployment.
How can I buy Mortgage Protection Insurance?
Mortgage Protection Insurance can be bought in two ways. Either it is “attached” to your mortgage , ie it is provided by the provider of your mortgage or you buy it independently from a standalone mortgage provider such as Antinsurance.
The difference between the two is primarily in cost and, contrary to the public perception Mortgage Payment Protection does not have to be expensive, in fact premiums have come down substantially in the last few years thanks to the increase of standalone providers such as Antinsurance who provide robust competition. Although they supply an Income Protection Insurance this more flexible option can be used for Mortgage Protection by simply applying for the amount of your mortgage payments only. It does pay to shop around to look at the various different premiums on the internet. As an example :
HSBC -
£5.94 per £100
Barclays
– £5.95 per £100
AntInsurance – from £0.60p
per £100
You need to be certain that the providers of your insurance police are authorised and regulated by the FSA and greater security can be gained if the company is UK based.
Most mortgage payment protection insurance policy holders pay the same flat rate regardless of factors such as age, smoking habits and medical history - although medical conditions which you had before the cover started (so called “pre-existing conditions“) are excluded. However, many of the standalone mortgage providers are now “age-banding” their monthly premiums meaning that the younger you are the cheaper it is so always do a comparison with these mortgage payment protection policies.
When looking at the benefit periods for mortgage protection insurance, look for providers who offer you flexible benefit periods of either 3 or 6 month, instead of the standard 12. A benefit period is the consecutive length of time you are actually able to be out of work for any one claim, remembering that you can make multiple claims for the life of the policy. Antinsurance are the only online company to currently offer this option that gives greater flexibility for those whose circumstances allow them to find work quickly or who have good health benefits from their company, to pay only for what they will probably use.
The type of mortgage protection insurance you can get will vary from mortgage providers. What is considered the best option to look for when buying Mortgage Protection Insurance is Back to Day 1 cover. This allows you to make a claim on the 31st day of consecutive loss of income that is then backdated to the first day so you are effectively paid in arrears. Many mortgage providers offer a “deferred period” and this is the length of time you must wait before you can claim and be paid. These deferred periods range from 3 to 12 months (sometimes more depending on the mortgage provider) but remember that you must be able to draw on your own savings, or other resources, to keep up your mortgage payments until you can claim.
Check the mortgage protection policy to see if you are covered against “dangerous occupations or sports”. Dangerous occupations can include riding a motorcyle which might be an issue if you are a courier! Many policies now include such things as “Temporary Work Scheme” and “Return to Work Benefit” that will give you greater options when returning to work.
Nevertheless, even the best mortgage payment protection insurance policies are not necessarily suitable for everyone. The exclusion for pre-existing medical conditions can, for example, make them of questionable value for those who have had illnesses that are likely to recur and, if you have sufficient savings to tide you through a spell of unemployment or accident and sickness you may not require full 12 months cover. In this instance you could look at the lesser 3 or 6 months benefit periods in order to reduce your premiums.
The self-employed should also be aware of the special exclusions that relate to their position before they take out mortgage payment protection insurance, because it only pays out for loss of income if you have submitted final accounts and your company is closed, you cannot make a claim if you temporarily go through a “lean patch”.
Value of Mortgage Payment Protection Insurance
Mortgage Payment Protection Insurance is a valuable product if you choose wisely and shop around. There is an argument that “cheap” means “poor quality”, for mortgage protection but this is not always the case. Take the time to read the Policy Terms and Conditions and make sure that the policy is suitable for your own requirements. Look out for FSA regulated companies, Back to Day 1 cover, flexibility in your benefit periods and age banding, be slightly wary of “free cover”, whilst it may look cheap to start with in the long term, and mortgage payment protection is a long term investment, it may work our more expensive than companies offering cheaper premiums with no gimmick ! Follow these simple rules and you will be able to safely buy Mortgage Protection Insurance.
Mortgage Life Insurance
Mortgage Protection comes in various forms, Mortgage Payment Protection Insurance being one but there is also Mortgage Life Insurance. Mortgage Protection will cover you against a short term loss of income and help you to cover your repayments whilst you get back on your feet, but Mortgage Protection will not be of any use if you should die whilst the mortgage was still running. In that instance you would require a policy called Mortgage Life Insurance. Mortgage Life Insurance is used to pay off the remaining mortgage debt on repayment mortgages if you die within the mortgage period.
UK’s cheapest insurance brokers who can direct you to the best Mortgage Life insurance are as follows:
www.life-insurance-online.co.uk
State Benefit
The first question you might ask is “How much help can the state give me?” The answer is “very little”.
Those who assume that the State will pay their mortgage payments if they lose their job or become too ill to work will be in for a nasty shock. Over the past decade support from the Sate for homeowners has gone into retreat. The government has by and large left homeowners to make their own arrangements as State support for this has been largely taken away.
If you do get ISMI (Income Support for Mortgage Interest) payments, it is paid at the Bank of England base rate plus 1.58%, or the rate of interest you pay – whichever is lower. If the interest rate you pay is higher than the ISMI rate, then you will fall short on your payments.
The points to be aware of are:
• If you took out your home loan after 1 October 1995, then the first thing you have to do is wait for nine months (or 39 weeks) without any help at all. Over-60s do receive help from the outset. Problem if you have no savings.
• If your mortgage is more than £100,000, ISMI only pays the interest on loans up to £100,000. If your loan is larger than that you’re going to face an even larger deficit. Nowadays mortgage repayment for loans in excess of £1000,000 are common.
• If you have a repayment loan the ISMI only pays the mortgage interest
– not any capital repayments that are part of a repayment mortgage.
Remember that neither will ISMI pay any endowments, ISAs, pensions
or any protection plans linked to your home.
• ISMI covers only a first mortgage (home-buyer loans), not any other
mortgages or secured loans that might be added for debt consolidation
or non-essential home improvements
• Finally ISMI is means-test, so you are unable to claim it if you
have a partner (spouse or equivalent) who works more than 24 hours
a week. If you £8,000 or more in savings, or if you receive any other
income, this also disqualifies you. With savings of £3,000 to £8,000
the means testing means that your entitlement to ISMI reduces to zero
on a sliding scale.
The government and mortgage lenders want you to make your own provisions and a little self-help and awareness will make it much easier to sleep at night. They want you to buy private mortgage protection to safeguard yourself and your family against losing your income as a result of accident, sickness or unemployment. For the consumer this means they must shop carefully to ensure the product they buy is right for them, they need to look at and understand the pro’s and con’s of the numerous providers of Mortgage Protection Insurance.