, Mortgage Protection Insurance , Mortgage Protection Insurance

What is Mortgage Protection Insurance?

Mortgage Protection Insurance normally refers to decreasing term life insurance plan directly linked to the repayment of a mortgage loan. The plan pays out a reducing sum insured over a specified period in order to repay a capital & interest repayment mortgage in the event of premature death of the borrower.  The insurance policy pays off the mortgage balance if the mortgagor dies before the mortgage is fully paid. It is important that there is no mismatch between the amount and term of the policy and the mortgage.

Ideally a decreasing term assurance is suitable for a capital & interest (repayment) mortgage, whereas a level term assurance is more suitable for an interest only mortgage.

Mortgage Protection Insurance Vs Mortgage Payment Protection Insurance:

A Mortgage Protection Insurance pays out a lump sum to redeem or reduce the mortgage balance in the event of the borrower suffering a premature death or critical illness if the policy include Critical Illness Cover. 

Whereas Mortgage Payment Protection Insurance (MPPI) also known as Accident Sickness &/or Unemployment (ASU);

  • is a short-term income replacement plan. 
  • protects against loss of your monthly income – usually between £0 and £3000 – and if you lose your job or can’t work due to accident or sickness, the insurer pays you the insured amount each month to spend how you like. 
  • the maximum payout period in the UK is up to two years or until you return to work, whichever happens first. 
  • if it’s a single premium policy, it also usually pays a cash lump sum if you die or become disabled during the policy.

Types of Mortgage Protection Insurance:

1: Level Mortgage Protection Insurance

Under a level life insurance, the sum assured is set at the outset for the whole of the policy term. The amount of cover does not change throughout the term and only pays upon death. The term can be any length – from weeks to up to 50 or more years. Most insurance companies limit the maximum age one can have a term insurance.

Level term assurance is more suitable for Interest Only Mortgage where the mortgage balance remains unchanged over the mortgage term.

2: Decreasing Mortgage Protection Insurance

The cover amount decreases each year (or possibly each month) by a stated figure, reducing to nil at the end of the policy term.

This form of cover is usually used for Repayment or Capital and Interest Mortgages or other loans where the amount owed decreases year on year.

Mortgage Protection Insurance – Is It Really Necessary?

The best way to look at this issue is to ask; how important is it to you to have your own home for you and your family? Most people would obviously answer; VERY IMPORTANT! Now, how important is it for you and your family to be able to keep your home in case of premature death, serious illness, accident, sickness and/or redundancy? These are dreadful eventualities and the worst that can happen to a grieved family or someone bedridden in a hospital, or disabled and wheel-chaired, or someone made redundant is an EVICTION NOTICE. We all work so hard to get to own our homes, why should keeping them be left to chance? Don’t be part of the ugly house repossession statistics, get mortgage protection insurance NOW!

Owning your home is really a dream come true for most people, but for as long as you have a mortgage on the property you will never have the original title deeds. They are kept by the lender as their security. If you fail to pay your mortgage, the lender would sell the property to recover their monies. The idea of insuring is based on the acceptance that something is important and needs to be insured. Most people insure the building, the contents in the house but don’t insure themselves. In other words the contents are more important to their families than they are.

The main reasons for mortgage arrears which lead to repossessions are loss of income due to premature death, critical illness, accident, sickness and/or unemployment. These eventualities are all insurable.

If you are the breadwinner for your family consider what will happen to your loved ones if you and your income were not there!

Nowadays, Mortgage Protection Insurance and Mortgage Payment Protection Insurance are not always conditioned by the mortgage lender, but the issue is not whether the lender makes it compulsory or not it’s about you and your loved ones, THINK!

Typical Fully Protected Mortgage Plan

Mortgage Protection Insurance or Mortgage Payment Protection Insurance, as mentioned above, is not compulsory so you could just as do nothing. But just imagine the agony of your grieved family or yourself in a wheelchair critically ill being forcibly evicted from your family home for failure to pay the mortgage. This is the ultimate price of the ‘do nothing’ option. Many people work very hard to buy their own home only to lose it due to the Superman Syndrome (it will never happen to me!).  If you have worked so much to own the family home, why should keeping it be left to chance?  Think! Protect your family treasure by either: 

Repayment Mortgage:

Decreasing term /Mortgage Protection Insurance with integrated critical illness cover is typically used for protection on a repayment mortgage 

Interest Only Mortgage:

Level term insurance with integrated critical illness cover is typically used for protection on an interest only mortgage. 

Repayment/Interest Only Mortgage:

Decreasing or Level term assurance with income protection insurance (as an option to Critical Illness Cover) can be used to protect either repayment or interest only mortgage.

These covers ensure that your loved ones have a roof over their heads should the family breadwinner, you &/or your partner die or suffer a critical illness during the mortgage term. 

These protection plans can be combined with: 

  • Mortgage Payment Protection Insurance (MPPI) to cover your income if you are made redundant or are off work due an accident or sickness. 
  • Buildings insurance, a compulsory insurance if you are buying a freehold property. 
  • Contents Insurance – optional but vital in case of accidental damage, fire, theft, floods, and other perils that affect your contents.

It is important to read the provider’s Key Facts before committing to the product. 

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