If you lose your job or become too ill to work, mortgage protection insurance can help you to cover your repayments and get you out of debt.
It works by paying a premium each month which can cover repayments if you fall behind for up to about £3000 a month for up to one or two years, depending on the insurer. Other determining factors will be the size of your mortgage, the amount of your monthly premiums and your most recent monthly salary.
Insurance companies will usually offer this type of protection as an add-on to your policy, alongside your mortgage package.
Life insurance, income protection and critical illness cover are all designed to help you cover costs in the event of debt due to your circumstances.
Comparing mortgage protection insurance and life insurance
As always, it’s wise to be informed about the options before taking out cover to protect your mortgage repayments. Compare various mortgage protection insurance packages, too, and obtain quotes.
With some companies, you may only be able to claim a percentage of your most recent monthly earnings; check the facts and figures on a range of protection policies, especially if you have a large mortgage to pay off.
Always compare mortgage protection insurance and decide which plan suits you, according to appropriate monthly premium and the cover you receive.
Claiming mortgage protection cover
It is unlikely you will receive any money within 60 days of signing up to the mortgage protection package. Therefore think carefully first if your job is secure and you are in robust enough health to withstand this initial period.
You may find, too, that some providers will only cover mortgage repayments for up to a maximum one year. If you have no other protection source in place, you will have to find the money yourself to pay off any debt.
Under certain pre-determined instances of job loss, some providers will not offer a pay-out for things like resignation, dismissal, or voluntary redundancy. It’s also best to check on certain conditions like stress or back related injuries.
At the lower end of the scale, the lower priced mortgage protection schemes usually carry a longer deferral time. With these cheaper options, you could find you have to wait longer before you can receive your first mortgage repayment when making a claim.
The length of time for deferral usually spans anywhere between 30 to 180 days. This will vary between providers and the amount you are willing to pay per month on premiums.
A pay-out after making your claim, is normally paid direct to the lender on your behalf. Check your policy as some products will include an option for the money to be paid direct to yourself. However, in this case, you may find that only a few companies will provide cover for the cost of additional bills.
Alternatives to mortgage protection insurance
It may be more suitable for you, depending on your circumstances, to look at the range of alternative options available. This is particularly so if you want protection mainly for health reasons, in addition to long-term income protection as the limitations may not be appropriate for you.
Critical illness cover
The option of taking out critical illness cover doesn’t provide income to replace a job income in the same way mortgage protection schemes do so. However, you can benefit from more specific advantages.
With critical illness insurance, you can get a lump sum pay-out if you are diagnosed with a critical illness. This can offset your monthly mortgage payments and other bills. This may be of more value to you if your employment benefits package or savings will not be enough to cover the costs.
Income protection cover
This type of cover will pay approximately half of your salary, should you have an accident or become too ill to work. As opposed to mortgage protection insurance, income protection will normally offer payment until you are fit enough to return to work or you reach retirement age.
Either of the above options may offer worthwhile protection for your mortgage repayments although be aware that they do not cover unemployment, as opposed to mortgage protection schemes. It is best to consider your individual circumstances to ascertain which is best for you. You may not need mortgage protection at all.
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