When you take out a mortgage you need to think how you will pay your mortgage if you become too ill to work or are made redundant.
Five Point Plan
Don’t just accept the policy on offer from your mortgage provider – shop around.
Always go for ‘back to day one’ cover and avoid any policy that charges an excess.
Ensure that the policy is portable – ie that you can keep it when you change lender as this means you are ‘locked in’ even if you develop health issues.
People with pre-existing medical conditions and those in employment-sponsored sick-pay schemes may not need accident and sickness cover.
The self-employed and short-term contract workers don’t need to buy unemployment cover as they can’t be made redundant. Some specialist insurers do offer a specific cover for the self-employed.
Mortgage payment protection insurance (MPPI) pays out if you can’t keep up your mortgage payments because of redundancy, accident or illness.
MPPI policies have a benefit period which is the length of time you can claim monthly payments for and you usually have to continue paying your premiums during this time. The length of time policies pay out varies, but is typically a year or two years. If you want longer cover you may have to pay higher premiums.
Many policies offer a choice of cover. For example, you can choose an unemployment-only option if job loss is your main concern, or an accident and sickness-only module without the unemployment cover, depending on your needs.
There is often an initial exclusion period of 30, 60 or even 90 days at the start of a claim during which time you won’t get any money. Many policies now offer ‘back to day one’ cover and have no exclusion period meaning you get your money straightaway.
Always look carefully at the smallprint before choosing a policy. Most policies do not cover pre-existing medical conditions and many do not cover common medical conditions such as stress, mental health issues and backache either.
The MPPI policy offered by your mortgage lender is unlikely to be the cheapest. You can find better deals by shopping around or going to a standalone provider.
Premiums are usually worked out as a price per £100 of benefit – so the bigger the mortgage repayments you want to protect, the more you will pay. Premiums are also affected by the type of cover you want.
The cover you get
MPPI pays out only enough money each month to cover your mortgage payments. In some cases MPPI might not be the best cover for your circumstances. If you want enough income each month to pay for food and bills too you should also consider income protection insurance.
The MPPI policy offered by your mortgage lender is unlikely to be the cheapest. You can find better deals by shopping around or going to a standalone provider