The last year has been difficult for all of us but has also showed us how important it is to be protected, just in case. One way to feel more protected is to take out mortgage payment protection insurance. Here’s what you need to know.
Why would I need it?
For the majority of homeowners, their mortgage is their biggest monthly outgoing. So, if losing your job or not being able to work due to an illness or accident means you’ll struggle to pay it each month, it’s sensible to protect yourself.
There are varying levels of mortgage payment protection insurance you can take out depending on what you want to be covered for. These are ‘unemployment only’, ‘accident and sickness only’, and ‘accident, sickness and unemployment.’ The level of cover you take will help determine the cost of the premiums.
But, you need to bear in mind that due to the pandemic, some insurers have added Covid-related exemptions to their policies, so make sure that you check before you take out any protection. Many providers have also begun to cover people who are self-employed. However, it’s always important to make sure you check the small print carefully to make sure you’re not exempt.
How much does mortgage payment protection insurance pay out?
The point of mortgage payment protection insurance is to cover the cost of your mortgage in the event you need to make a claim. And these policies will typically pay out for up to two years. But you can choose for the policy to pay out more than the cost of your mortgage so other bills are covered too. Alternatively, you can opt to receive a proportion of your salary. Again, the level of cover you choose will have an impact on the cost of premiums.
When do I get the money?
You’ll usually need to be off work for a specified number of days before the policy starts paying out. This can range anywhere from 30 to 180 days. The longer the period you’re prepared to wait, the cheaper the policy will typically be.
So, consider your own circumstances. If you’re entitled to sick pay from your employer, bear this in mind when you’re deciding how long you’re happy for the waiting period to be. However, it is possible to get ‘back to day one’ policies which don’t have a waiting period before you can claim.
What other types of protection are there?
Income protection
This pays out a proportion of your salary each month if you’re unable to work due to accident or illness. Income protection policies typically pay out for a longer period than MPPI. Policies vary but they may pay out until you are able to return to work or reach retirement. Income protection tends to be more expensive than MPPI.
Critical illness cover
This will pay you a tax-free lump sum in the event that you're diagnosed with a serious illness covered under your policy. You could use a lump sum to either service the payments on your mortgage, or pay it off completely, depending on the amount you receive.
Life insurance
These policies will only pay out if you pass away. But they're worth considering if you have dependents as they pay out a lump sum.
Who should I talk to?
Life can throw curveballs at us when we least expect it, so it’s really important to have a plan in place in case things go wrong.
If you want to find out a bit more about protection and insurance policies, whether it be against illness, accidents or losing your job, our expert protection advisers will be happy to help.
