Perhaps the worst fear of a mortgage payer is missing payments and then having their home repossessed. Mortgage protection insurance protects the mortgage by covering the repayments if the holder loses their income through sickness or accident.
Why you need mortgage insurance
Many households have enough savings to cover the mortgage if they are off work for a short period, but few will be able to keep up with the payments if they have a serious illness or an accident that means they cannot work for a long time.
Mortgage insurance, also known as mortgage payment protection insurance, will pay the mortgage for about two years. Payments of up to £2,000 a month are usually covered.
You may be able to get some help from the government after you have been out of work for a few months, but often the amount will only cover the interest on the loan, so the equity in the house will not rise.
The premium costs of mortgage insurance vary and are dependent on your age, health and the cost of your mortgage repayments. For someone under the age of 50 on an average UK salary of £26,500 with monthly mortgage payments of £1,000, premiums can be around £26 a month. This is based on a policy that will pay out 30 days after you are off work through illness or an accident, or are made redundant. For people over the age of 50, monthly payments are likely to be a few pounds a month more.
Income protection insurance is an alternative to mortgage insurance. This policy pays out a percentage of your salary if you are ill or injured. You are free to use the money for any purpose, not just to pay the mortgage. If your illness or injury is serious and you are off work for an extended period, the income protection insurance will pay out for a longer period than mortgage protection insurance, but premiums will generally be higher than mortgage insurance.
If your company has group income protection insurance or generous sick pay, then you may not need mortgage insurance if these policies mean that you can afford the mortgage payments when off work.
Mortgage insurance will cover you for sickness and accidents. Some policies will also pay out if you are made redundant and actively seeking work. Voluntary redundancy is not usually covered, and nor are pre-existing medical conditions are not covered. Additionally, a deliberate injury to yourself will negate any claim.
Cover is available for people between the ages of 18 and 65 who are either employed or self-employed.
Choosing the right policy
There are many insurance providers who will sell you mortgage insurance, but it is not easy to find the best deal. An advisor or broker will help you find the best insurance products.
At Ascot Mortgages, we can find the right policy for you thanks to our access to a wide range of insurance providers and products.