Mortgage Protection

What is mortgage payment protection insurance?

As a large majority, homeowners in the UK rely on mortgages to afford their homes. It also happens to be likely the largest debt, or loan, in our lifetime. If so, and your mortgage’s outstanding balance is quite high, at least stacked up against your other debts, then it’s also likely your largest monthly outgoing too.

Mortgage Payment Protection Insurance, sometimes shortened to MPPI, ensures your mortgage payments are met, especially if you no longer have an active income. This could be from poor health, such as illness, or injury, or redundancy. MPPI can cover this urgency.

Essentially, it’s a life cover policy designed to protect your mortgage.

If your main sources of income become jeopardised how would you look after your mortgage? Is your savings pot deep enough to live up to the demands of monthly mortgage instalments?

What are the types of mortgage protection?

You can build a policy more closely aligned with your ambitions, with multiple options available to you:

  • Unemployment Only.
    Covers you against redundancy.
  • Accident & Sickness Only.
    Coverage against long-term illness, or injury.
  • Accident, Sickness & Unemployment.
    Protection from illness, injury and redundancy – comprehensively managed in one place.

The more comprehensive cover option, the package with accident, sickness & unemployment, is usually more expensive than the other policy types – unemployment-only or accident and sickness only.

What is a “waiting period”?

Sometimes called an “excess period”, this window of time defines the specific allocation of days you will need to be off work before your benefit can be claimed. This usually has a range between 30 to 180 days.

What is an “exclusion”?

Definably, simply, as the time between opening a policy and being able to make a claim.

This can also be called a “buffer” period, which defines a kind of soft pause, or delay, before making a claim of usually 30-180 days. It’s unlikely that a claim can be issued into the early hours or days of a policy, because it’s a contingency plan.

The buffer period, or exclusion, will also vary between policy specifics. For example, if you’re on a unemployment-only cover type, you’ll likely have longer waiting periods to ensure that you are in routine work.

Back-to-day-one policy?

As a typically more expensive option, a “back-to-day-one” policy allows you to claim pay from your first day off work with illness, injury or accident. Most policies, however, will pay you in arrears, which delays your benefit for about a month from a valid claim.

How much does mortgage protection cost?

For a large part, the premiums of your policy will reflect your unique circumstances. Yet, there are a set of criteria that are commonly used to size up the costs of cover for an applicant, such as:

  • age.
  • health.
  • lifestyle choices.
  • outstanding price on your mortgage, or other loan.
  • General risks and habits (like Smoking). 

When categorising risk, insurers may look into your profession to help determine your proximity to danger, even if only casual. The higher the risk, the more likely you are to qualify for pricier premiums.

What if I am self-employed?

In short, you still qualify.

But do read the terms carefully as, sometimes, your contract type can guide your eligibility.

How does a policy pay-out work?

The benefit, or pay-out, mirrors a monthly income. Although, this benefit is time-sensitive and may be capped at an upper threshold of 2 years.

There are typically a handful of financial decisions that will guide how your monthly benefit will look and, consequently, the amount of the pay-out. You might, for example, opt to have the benefit cover your routine income, or salary. Or, use your benefit to meet the basic mortgage payments. Alternatively, you can guide this cover type to protect both your mortgage and your salary.

Owning a purpose behind your cover will help settle difficult decisions but keep your most treasured assets safe.

What if I have pre-existing medical conditions? 

It can often be difficult to find a policy that covers you for pre-existing conditions or injuries. Normally, if you experience a health issue beyond 12-months then it qualifies as a known condition.

A policy-specific inquiry, however, will reference your unique cover plan. Where some apply tighter criteria, other providers may be more relaxed with your coverage.

Can I claim for mental health?

Whilst mental health awareness is on the rise, it can sometimes be difficult to make for these reasons – whether that’s because it’s harder to evidence, or that a policy isn’t covered against that. It’s more a case-specific inquiry, though, meaning that you should check in with your insurer if you’re unsure if your policy answers to mental health.

Is there an alternative cover for my mortgage?

Depending on your goals and budget, there may be more options available to you.

  • Life Insurance. 
    With a sizable sum assured, you can protect a mortgage using life insurance and possibly have left over funds if you find yourself feeling pinched on other cover types.
  • Income protection.
    This speaks most loudly to a cover type that looks after your income, especially when it pays off the monthly bills.

Mortgage life insurance in the UK

Keep the home within the family with even more ways of looking after your mortgage.

How does mortgage life insurance work?

You build a policy that parallels your mortgage. Think life insurance, but for the home.

With this purpose in mind, you nominate a term in your policy, which defines a length of time, or tenure, in which your cover is active. This normally runs to the same length as your outstanding mortgage debt. If you have, for example, a mortgage on a 25-year term, then your policy will run for at least that length of time.

Your policy will hold a certain value, known as the sum assured. This describes the amount of coverage you’d actually like to include in the policy, usually as a total sum, which often parallels the balance left against your mortgage.

How much does mortgage life insurance (actually) cover?

The respective term and sum outlined in your mortgage is a starting measurement for the amount of coverage you might need. And, usually, this balance is a close match, if not exact, to your current mortgage – because, in the eventuality of a claim, you should be able to clear away this debt.

It helps to think aloud, try answering these:

  • how much would I require to meet my mortgage value? 
  • how  indispensable is my monthly income? 
  • how much could I realistically rely on my savings? 
  • what kind of disruption would this have on my family’s lifestyle? 

How much does mortgage life insurance cost?

You can decide on how your monthly premiums look:

  • Guaranteed premiums.
    this riff on your premiums ensures a fixed cost against the duration of your policy. It keeps the monthly cost predictable, if the same, through your tenure on the policy – meaning you won’t have to adjust for any sudden pay hikes, or surprises.
  • Reviewable premiums
    a reviewable type of premium could offer up, initially, a cheaper quote for monthly costs, but can increase as the policy ages.

What types of mortgages are protected?

A mortgage can be classified under two types of payment schemes; ultimately, this will inform how you can use life insurance to protect your family home.

  1. Repayment.
    The most popular, called a decreasing term, is where the sum assured shrinks alongside the overall outstanding debt on your mortgage. This creates a parallel: as you repay your mortgage, your sum assured lowers, closely aligning the value of the policy with the payable loan against your home. This option is sensible for those with a repayment mortgage. Often a decreasing term is cheaper, precisely because the risk reduces with the passing age of the cover.
  2. Interest-only.
    Yet, for those committed to an interest-only mortgage, where your monthly costs ebb away at the interest on your loan’s value, there’s a level term life insurance option. The pay-out benefit won’t shrink during the course of the policy, to keep the values similar between your mortgage and sum assured.

On reflection, a policy can be motivated not only by our personal budget, but also through the kind of mortgage you currently hold. This will inform how premiums look and feel when thinking about protecting your home.

Do I need life insurance with a mortgage?

Whilst not a legal requirement, nor compulsory, life insurance for a mortgage is an essential provision.

Life plans can be frittered away by the uncertainness of the future, itself unpredictable and mysterious. But with contingency planning, a way of thinking ahead, you can make sure things don’t have to change.

What are the lenders saying?

Sometimes, though not by default, lenders may choose to release funds on the condition that some level of cover is actively in place to offset the risk of a sizeable loan. Holding a mortgage without some kind of insurance is risky business.

Who can get mortgage life insurance?

This is a question of eligibility, only with a straightforward answer: anyone with a mortgage.

Like all types of life cover, risk is the popular metric for most insurers, itself kind of like a compass, insofar as guiding, roughly, their decision-making. The greater the risk, the higher the premium.

What will influence the cost of my premiums?

  • Your age.
  • Your lifestyle choices.
  • Your health & wellbeing.
  • Your smoking status.
  • Your desired policy length.
  • The sum assured/ or cover amount.

For example, someone who smokes, given their health risk, will likely incur higher premiums. Yet, a healthy, younger applicant, and one with reduced lifestyle risks, will be able to access cheaper premiums.

Am I eligible for cover?

If you’re a UK citizen and a homeowner, current or prospective, then mortgage protection insurance is a strong option for keeping your home secured against uncertainty.

Does smoking effect my mortgage protection premiums?

Any hurtful habits to your overall health, essentially hobbies or lifestyle choices that bring us closer to risk, has the chance of bumping up our premiums. It shouldn’t, however, disqualify you from obtaining cover.

What if I already have life insurance (and want to buy a property?)

If you already have an active policy, it likely means you’re looking after something or someone of value. Even if your existing policy is only precautionary. Your existing policy might, for example, be looking after your children. Or, maybe, it’s a matter of inheritance.

It’s a critical step to establish what your funds can actually cover. If you need a higher sum assured, then another policy could be beneficial. Yet, if you carry sufficient funding in your existing policy, you may not require any further mortgage protection.

It’s another option to consider taking out multiple polices. This will, however, depend on the tightness of your budget and the actual amount you want covered.

Remortgaging

Oftentimes, homeowners are faced with both competing opportunities and challenges of taking on a new property.

Those remortgaging may be persuaded by a number of benefits, including:

  • An existing mortgage has ended.
  • Upscaling to a newer, larger and often more expensive property.
  • Home improvements, where additional funding is required.

Addressing your life insurance policy, you might consider the following options:

  1. Start with contacting your insurer and see if the amendments change your policy (including any revised costs on its premiums). Your existing policy may need updating.
  2. Or, compare quotes for another policy bespoke to your new property purchase. Be wary that changes in your lifestyle since enacting your first policy could add up against another, newer one.

Managing between both options will help inform judgements about the most cost-effective cover types available.

Joint policies

Many couples share assets under joint polices, such with banking and homeownership. A joint policy can spin higher premiums into a manageable monthly sum.

But how does this apply to life insurance (especially for a mortgage)?

There are many incentives to opt into a joint policy. It’s oftentimes financially effective to merge resources. There’s too the easiness about a joint cover policy, especially for those married and with no dependants. And, lastly, there’s potential for savings to be won on a joint policy, which roughly equates to 25% over having two standalone polices.

A joint policy, though appealing, only guarantees a one-time pay-out, normally against the first death of a policyholder.

Holding multiple policies

Rather than a joint policy, it’s possible for a couple to hold and maintain two separate ones. Multiple standalone policies, though initially more expensive, can add additional layers of protection to your financial assets.

Typically, people opt into multiple policies to cover a larger sum (payable on the maturity of multiple policies). And, yes. You can set up enough cover (under many policies) to receive multiple pay-outs.

This is strong choice for those with financial dependents, such as young children. You can ensure, in this scenario, that your family will receive multiple payments.

Or, popularly, multiple policies can be used to stretch your total sum assured. If one policy provides insufficient funds, then taking out another can satisfy a level of financial security.

Which mortgage insurance is best?

Everyone’s circumstances are different.

When it comes to matters as urgent as protecting the home, there are two pathways into insurance that can give you the kind of cover you’ll need. We’ve covered these above in depth, but to recap they read a little like this:

  • Mortgage Payment Protection Insurance.
    A short term relief against accidents, injuries and (potentially) unemployment. This styling of insurance releases funds to cover the monthly outgoings on your mortgage.
  • Mortgage Life Insurance.
    Pays out a sizable lump sum to clear away the outstanding balance on your mortgage.

What’s the difference between MPPI & mortgage life insurance?

They serve a similar purpose but achieve mortgage protection to different outcomes.

MPPI, shorthand for mortgage payment protection insurance, offers up relief as a short-term project, which makes it an ideal purchase for those with money sensitive budgets, shorter goals, or those seeking an alternative to policies with big sums.

Mortgage life insurance, on the other hand, issues a lump sum on the policyholder’s death to cover the mortgage, making it feel similar to other life policies. This is a sharp option for those with larger debts to manage, which will take some time to pay-off.

Mortgage insurance with critical illness

Often as an optional layer of protection, critical illness cover looks after your financial assets if you became seriously, yet not terminally, ill.

The payments received from this benefit could be useful in ensuring your mortgage repayments are honoured, acting as a kind of proxy, or replacement, income whilst you recover.

What’s covered?

  • Stroke.
  • Heart Attack.
  • Certain types of cancer.

Mortgage insurance with terminal illness

It’s common, as a product default, for mortgage life insurance to be offered with terminal illness cover.

This could ensure an early payment to your beneficiaries, whether to clear your mortgage, leave behind money for daily expenses, or for private medical care.

Writing a mortgage life insurance in trust

When a policy is written in trust, it becomes removed from the deceased’s estate. This can ensure your benefit is distributed according to your wishes.

This is shorthand for a nominated trustee handling your funds and ensuring the money reaches your beneficiary.

The benefits include:

  • funds skip probate
  • a faster payment to your named beneficiaries.
  • avoid the existing 40% inheritance tax that applies on estates over £325,000.
  • You full sum is more likely to reach your loved ones.

Where can I buy a policy?

Comparison tools open up the market to ensure that you don’t lose out on the desirable rates – where life policy costs can vary greatly between insurers. Smartly navigate the market to discover how a policy can work for your budget and goals.

When is the best to buy mortgage protection?

There is no right moment. It’ll depend on your life journey.

Popular motivations to opt into cover usually succeed a major life event:

  • Buying a new home, or upscaling to a new one.
  • Having children/ or financial dependents.
  • Experiencing a loss.
  • Planning sensibly ahead.

Comparing top mortgage protection quotes

It’s a process of time, money & love.

Comparing the market in the UK can score you big on top rates and skirt any time-wasting by connecting you up, quickly and easily, with the kinds of policies ideal to your budget and goals.

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