What Does Mortgage Protection Cover?

June 21, 2024

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Mortgage protection insurance (MPI) is designed to ensure that your mortgage is paid off or your mortgage payments are covered in the event of specific circumstances. Here’s a detailed breakdown of what MPI typically covers:

Types of Mortgage Protection Insurance

Life Insurance-Based Mortgage Protection

    • Coverage: This policy pays off the remaining mortgage balance if the policyholder dies during the term of the mortgage. The benefit amount decreases over time, matching the reduction in the mortgage balance.
    • Beneficiary: Usually, the payout goes directly to the lender to clear the mortgage, ensuring that your family can stay in their home without financial burden​.

Critical Illness Mortgage Protection

    • Coverage: This policy pays a lump sum if you are diagnosed with a critical illness specified in the policy, such as cancer, heart attack, or stroke. The lump sum can be used to pay off the mortgage.
    • Beneficiary: The payout can be used to cover the mortgage or other medical and living expenses, providing financial relief during a challenging time​.

Mortgage Payment Protection Insurance (MPPI)

    • Coverage: MPPI covers your monthly mortgage payments if you are unable to work due to illness, accident, or redundancy. It typically pays out for a specified period, such as 12 months or up to 2 years.
    • Conditions: This policy has specific terms, including waiting periods before payments start and exclusions for certain types of redundancies or pre-existing conditions​​.

Detailed Coverage Aspects

Death

    • Life Insurance-Based MPI: Provides a lump sum that pays off the remaining mortgage balance upon the policyholder’s death, ensuring that surviving family members are not burdened with mortgage payments​.

Critical Illness

    • Critical Illness Cover: Pays a lump sum if diagnosed with a severe illness listed in the policy. This amount can be used to pay off the mortgage or manage other financial needs during recovery​ ​.

Redundancy

    • MPPI: Covers mortgage payments if you lose your job due to redundancy. This ensures that your mortgage payments are maintained during your period of unemployment. It’s important to check for exclusions and waiting periods associated with redundancy cover​.

Disability

    • MPPI: Also covers mortgage payments if you are unable to work due to an accident or disability. This provides financial stability while you are unable to earn an income due to health issues​​.

Exclusions and Limitations

Waiting Periods

    • Time Before Payout: Many policies have a waiting period (often 30-90 days) before payments begin. It’s crucial to understand these terms to know when you can start receiving benefits​ ​.

Policy Exclusions

    • Specific Conditions: Policies may exclude coverage for pre-existing conditions, certain types of critical illnesses, voluntary redundancy, or if the redundancy occurs shortly after taking out the policy​​.

Duration of Payments

    • Payment Period: MPPI typically covers payments for a limited period (e.g., 12-24 months). Ensure you understand the maximum duration of payments under your policy​.

Conclusion

Mortgage protection insurance can provide valuable financial security by covering your mortgage in case of death, critical illness, redundancy, or disability. Understanding the specific coverage, exclusions, and terms of your policy is essential to ensure that it meets your needs and provides the necessary protection for your financial circumstances.

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Answered by:

Richard Johnson

Protection Consultant

Last Updated:

28.06.2024

Answered by:

Richard Johnson

Protection Consultant

Last Updated:

28.06.2024

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