Which is the best mortgage protection insurance – Is it worth it?
What is mortgage protection insurance?
There are two types of insurance that are often referred to as mortgage protection insurance namely:
- Mortgage protection life insurance
- Mortgage payment protection insurance
What is mortgage protection life insurance?
This is a policy that provides a lump sum in the event of death of the life insured which is designed to pay off the outstanding mortgage debt.
What is mortgage payment protection insurance?
This is a policy that provides a regular monthly payment to help maintain your mortgage payments if your are unable to work due to accident, sickness or unemployment. All mortgage payment protection policies have an exclusion period which means payments will not commence as soon as the policyholder ceases work but will commence after a period 30 days or more.
So the difference between mortgage life insurance and mortgage payment protection insurance is that the former is payable upon death and clears your outstanding mortgage while the latter covers your monthly mortgage repayments, for a limited period of time, if you are unable to meet them due to ill health, an accident or unemployment.
What is covered by mortgage protection insurance?
A mortgage life insurance policy will pay a lump sum in the event of death of the life/lives insured within the term of the policy. The sum assured selected should be enough to cover the outstanding mortgage debt and can be arranged as a single mortgage life insurance policy or a joint mortgage protection policy, the latter insurers more than one life. The sum insured can reduce over the term of the mortgage, if you take out what is known as a decreasing term insurance policy, to match the outstanding mortgage that you have on a repayment mortgage. Alternatively if you have an interest only mortgage (so that the original amount borrowed remains outstanding until the end of the mortgage term) then it would preferable to take out a level life insurance policy, rather than a decreasing life insurance policy, to match the debt.
A mortgage payment protection policy will provide a regular monthly payment if the policyholder is unable to work due to accident illness or unemployment (depending on the cover chosen at outset) within the term of the policy. This regular monthly payment will typically be enough to cover the monthly payments on a mortgage.
Typical policy exclusions of mortgage protection insurance?
A mortgage life insurance policy will not normally have any exclusions, although it can, as each application is underwritten individually taking into account the medical information disclosed on the application form. In some cases the sum assured may be reduced, or in fact cover refused altogether, due to an adverse health record. Alternatively the monthly premium can be rated, which is the techincal term for charging you more.
A mortgage payment protection policy will have what is known as a deferred period before any payments commence. This will mean that the policyholder will have to be off work for a period of at least 30 days before any payments will commence. A deferred period longer than 30 days can be selected by the policyholder which will reduce the policy premiums. The amount of the monthly payments available is limited to 65% of the policyholder's gross annual salary. Most policies will pay a monthly amount for a period up to 12 months or until you return to work, whichever is sooner
Can I get mortgage protection insurance if I am self employed?
Mortgage life insurance is available for self employed and the amount and cost of cover available will simply depend on the applicant's age, health and lifestyle. Your employment status is only a minor concern, however, if you have a dangerous occupation it will increase your monthly life insurance premiums.
Mortgage payment protection insurance is available for self employed applicants but not available for workers on temporary, casual or seasonal contracts.
Do I need mortgage protection insurance - is it worth it?
A mortgage life insurance policy is vital to ensure a family's financial future in the event of premature death of one or both breadwinners. Premiums are affordable within most family's budget and arranging cover is quick and simple. However there is no law stating that you have to have a mortgage life insurance in place to obtain a mortgage. Mortgage life insurance is one of the first things I recommend people implement when looking at their finances. It is the foundation of good financial planning.
A mortgage payment protection policy will provide financial security if your income ceases while you are off work due accident, illness or unemployment (depending on cover chosen). The monthly payments will commence after a deferred period (typically between 1 and 12 months). While this type of cover is not essential you do not to consider how you will keep up your mortgage repayments in the aforementioned circumstances.
How much is mortgage protection insurance?
The cost of a mortgage life insurance policy will depend on the sum assured, term, age and health of the applicant. The table below shows how much mortgage life insurance costs:
|Age next birthday||Sum insured||Term (yrs)||Monthly Premium|
- premiums are for a male non-smoker at normal rates
The cost of a mortgage payment protection policy will depend on amount of monthly payment, age, health, occupation, deferred period and length of payment period. The table below shows how much mortgage payment protection insurance costs:
|Age next birthday||Monthly income protected||Deferred period (days)||Unemployment deferred period (days)||Monthly premium|
- monthly income payable for 12 months
Who has the best mortgage protection insurance?
There are a number of insurance companies that provide mortgage protection insurance offering both mortgage life insurance and mortgage payment protection insurance.
Insurance companies assess each applicant using their own underwriting process therefore premiums and type of cover provided can vary from company to company.
Mortgage protection best buys
As the premiums on mortgage life insurance and mortgage protection insurance are assessed using the information provided by the applicant it is difficult to select a 'best buy' policy. Using an insurance comparison service is the best way to find the best mortgage life insurance and mortgage payment protection insurance for your needs. However head the warning below.
Compare mortgage protection insurance quotes
Our mortgage life insurance and mortgage protection insurance comparison service will find the best policies for your needs. However mortgage life insurance comparison tables only give an indication of the likely cost of a policy. The price you ultimately pay will depend upon your own circumstances, health, lifestyle and how the insurance company underwriters view these in terms of risk. It is therefore important that once you receive a quote that you speak to the life insurance experts behind the calculator, whom I've personally vetted, to see which insurance company will view your application most favourably. You could of course apply to more than one yourself without an advice but insurance companies share information and will know if you have been rejected or had your insurance premiums increased when you applied to other insurance companies. Even if they don't have that information to hand you have to disclose it in each application you make and failing to do so could invalidate any future claims. So it is best to accept expert help before you buy mortgage protection insurance.
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