Mortgage protection is a slightly confusing term as it can refer to life insurance or even Payment Protection Insurance. In basic terms, life insurance products cover the policy holder in the event they pass away whilst Payment Protection Insurance covers the monthly mortgage payments in the event that the policy holder is unable to earn/work due Accident, Sickness or Unemployment for up to 12 months.
What is Mortgage Protection Life Insurance Cover?
Mortgage Protection Life Insurance cover pays-out a lump sum amount of money in the event the policy holder passes away. The money is then used by loved ones to pay off the outstanding mortgage.
Mortgage protection cover is also often known as Mortgage Insurance, Term Assurance, Term Life Insurance and Mortgage Life Insurance.
What type of cover do I need?
If the pay-out from the insurance policy is to be only used for repaying the outstanding mortgage, then a decreasing term life insurance product is sufficient as the sum insured decreases in line with the reduction in mortgage.
For interest only mortgages, a level term life insurance policy is ideal as the sum insured remains the same as agreed at the start of the policy.
How much cover will I need?
The amount of cover/ sum insured required will depend on individual circumstances. You will need to work out the financial impact on your loved ones in the event you pass away. Essentially, how much financial assistance will they require if your income was no longer available to them?
Typically Terminal Illness Cover is offered as a standard on your Mortgage Protection Life Insurance policy. So, in the event the policy holder is diagnosed with a terminal illness the insurance policy will pay out the sum insured. Though, this doesn’t apply during the last 18 months of the mortgage protection insurance policy.
Other add-ons include Critical illness cover, which pays out the sum-insured if the policy holder is diagnosed with a pre-defined medical condition. With regards to the type of illness covered, the list can be very long especially as some insurer’s cover more than 60 different injuries. However, it is important to note, that in many cases the illness needs to be critical or permanent before the pay-out will be triggered. For the case of cancer, treatable cancers will not be on the list or it will need to be at a certain stage before the pay-out will be considered.
What is Mortgage Payment Protection Insurance?
In the event the policy holder is unable to work due to accident, sickness or unemployment, then the Mortgage Payment Protection Insurance pays out monthly payments which will be used to pay for the mortgage for up to 12 months.
Payments from the policy would start one month after the policy holder has been unable to work and in most cases be paid directly to the mortgage provider.
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