What is mortgage protection
insurance?
A home is likely
to be the biggest purchase you'll make in your lifetime, and almost all
homeowners will need to take out a mortgage to pay for it.
It's obviously
very important that you're able to keep up with your payments. But what
can you do if something prevents you from making your payments? That's
what mortgage protection insurance is designed to help with.
An introduction to mortgage
protection insurance
Mortgage
protection insurance - also known as mortgage payment insurance or MPPI
- could provide you with a very useful 'safety net' in the event that
you can't cover your mortgage payments due to serious illness, accident
or unemployment (as long as you meet all the other terms of your
policy).
Most policies are
designed to provide you with enough money to cover your mortgage
payments each month for a limited time (e.g. up to a year). However, you
may prefer to take out cover for a certain percentage of your monthly
mortgage payment (e.g. 50%) - which could be useful if your finances are
joint with someone else's. Or you might choose to insure yourself for
more than 100% of your mortgage payments, to help with other things such
as bills.
When would I be covered?
It's important to
understand that this varies from policy to policy. But in general, you'd
be covered in the event of unemployment (through no fault of your own),
personal accident or sickness (excluding known pre-existing medical
conditions).
It doesn't
actually matter whether you can afford your mortgage payments or not. As
long as you meet the criteria for a claim, you'd receive a payout (even
if you received a redundancy payout, for example).
When wouldn't I be covered?
In general, your
cover would be invalid if you became unemployed by choice or through
misconduct, or if your illness was linked to a medical condition you
knew you had when you purchased the cover.
Do I need mortgage payment
insurance if I have savings?
You might not feel
you need mortgage payment insurance if you have plenty of money
in savings, but that doesn't necessarily mean it's not a good idea.
The payout you'd
receive from a successful mortgage protection insurance claim can be
significantly higher than the amount you've paid in. Savings, on the
other hand, can only offer a little more than you've paid in, depending
on how much interest you've earned. In short, mortgage payment insurance
can be a much more cost-effective way of protecting yourself.
Of course, it's
always a good idea to put some money into savings for other financial
emergencies. But you might decide it makes sense to set aside some of
the money you'd normally put into savings to pay for a mortgage payment
insurance policy instead.
Sources:
http://www.thinkmoney.com/insurance/mortgage-insurance/
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