You’ve found your dream home and the mortgage has been agreed, so what’s next? No, not scrutinising colour charts and choosing cushions (although we agree they’re important!). Before picking up the keys to your new front door, you really need to look into mortgage protection cover - and here’s why!
Mortgage protection insurance (MPI) is a particular type of income protection cover designed to pay your mortgage should you be unable to work for a spell. Having mortgage cover is a sensible option to keep the roof over your head while you recover from illness or find a new job, yet common misconceptions can lead homebuyers to take out a policy that’s not right for them. We separate the fact from the fiction to help you choose wisely.
1. Do I need mortgage protection?
Unlike buildings insurance, which is usually asked for by lenders as a condition of your mortgage, in most cases MPI is not actually required in order for the mortgage to be agreed, as long as you meet the lender’s affordability criteria. However, for many of us, our mortgage is our biggest monthly outgoing and being unable to pay it could put us at risk of losing our home, which is why having a ‘plan B’ in place is a really good idea.
2. You don’t have to take out a policy with your mortgage lender
Your mortgage lender might try to sell you insurance protection when you take out the mortgage, and the policy offered might well be right for your lifestyle and circumstances. However, it’s also wise to compare mortgage protection policies as there can be a significant variation in price and benefits. Cover can run for a fixed number of years or until you retire, while you might also want to take employer benefits into consideration when thinking about the level of cover needed.
3. Your mortgage cover might have an exclusion period
Some policies don’t kick in until after an agreed timeframe, which can be anything from 30 to 180 days. Think about how you would pay your mortgage in the meantime; if you don’t benefit from sick pay, you might want to build up a financial cushion to tide you over.
4. Mortgage insurance can exclude medical conditions
If you have certain medical conditions, a high BMI or a hazardous job, it can be more difficult to obtain all kinds of insurance, including mortgage protection. ActiveQuote.com partners with a range of specialist insurers and we’re proud of our high success rate in providing the right cover for customers with even the most challenging circumstances! As with any policy, it’s essential to read the small print and understand what’s included, so there are no nasty surprises should you need to call on your mortgage protection in difficult times.
5. Other insurance policies might better suit your needs
Sometimes, other products might be a better option than mortgage protection. Income protection insurance, for example, can offer greater flexibility; mortgage cover has to be used for that purpose but income protection can be used to pay a range of bills as well as the mortgage. Critical illness insurance, which pays out a lump sum on diagnosis of a named condition, is another option, while redundancy insurance provides up to 70% of your income for 12 months should you lose your job involuntarily.
6. Mortgage protection is different to mortgage life insurance
You may be offered mortgage life insurance or assurance, which is not to be confused with MPI. Mortgage life insurance pays out if you pass away before the end of the mortgage term, taking from dependents the worry of having to meet monthly repayments. Mortgage protection cover decreases in line with your mortgage, whereas mortgage life insurance can either decrease or be set at a level term, which could leave your relatives with sum greater than the remaining mortgage balance.