Mortgage Insurance Cover Explained

Most people will be aware how difficult it is to obtain a mortgage these days. Sadly, an increasing number of people are also discovering how relatively it is to lose not just the mortgage, but the home along with it, if it becomes impossible to maintain the repayments. Yet for many of such homeowners, disaster might have been averted by the lifeline thrown by mortgage insurance cover.

One of the most basic essentials of life is having somewhere to live. That is one of the reasons why so many people in the UK work so hard and invest so much of their income in buying their own home.

Following the recent credit crunch and the seemingly endless round of price rises for everything from utility bills to food, mortgage repayments are costing more for everyone and many people are finding it increasingly difficult to make ends meet. In these circumstances, yet another insurance premium – mortgage insurance cover – might at first sight appear to be the last thing they want to know about. Yet insurance for the mortgage could prove an extremely valuable lifeline, well worth its weight in the very modest cost of the premiums involved.

The frightening fact is that more people lost their precious homes during the first half of 2008 than at any other six-month period in the past 12 years. The Telegraph newspaper reported in August 2008 that actual number of owners who had their homes repossessed was 18,900 – nearly 50% more than the same period in 2007. What is worse, of course, is that those who finally lost their homes represented just the tip of the iceberg, since a further 155,600 homeowners in the first six months of 2008 were also at least 3 months in arrears with their mortgage repayments and unless they could find a fast solution to their debt problems, they too could face the disaster of repossession. As the Council of Mortgage Lenders observed, many homeowners faced by the crippling rise in the cost of living could no longer rely on remortgaging, since more affordable borrowing was simply not available post-credit crunch.

Mortgage Insurance Cover from Burgesses

What these grim statistics help to show is the relative ease with which it is possible to get into difficulties repaying the mortgage these days. However carefully planned the household budget, a temporary loss of income can be the last straw. And that is what makes mortgage insurance cover so valuable.

With this type of insurance – more formally known as mortgage payment protection insurance – if the policy holder is off work because of the need to recover from injuries from an accident or to recuperate from an illness, or even if he or she is involuntarily unemployed, the insurance pays a regular monthly benefit equal to the required mortgage repayment, plus any related costs such as life insurance and buildings and contents insurance for example.

Not surprisingly, accident, sickness or unemployment are the most common reasons for homeowners getting into difficulties with meeting their mortgage repayments. These are events that are totally unexpected and when they strike out of the blue they can knock the best laid budget plans for six. Without mortgage insurance cover, therefore, many people find little alternative but to slip into arrears with the repayments and – as the statistics show only too clearly – arrears can turn into applications by mortgage lenders to the courts for repossession orders.

Mortgage Insurance Cover

Mortgage insurance cover can stop this happening. If the policy holder is off work for more than a given period of time through accident, sickness or involuntary unemployment, the monthly benefits become payable. The minimum period of time off work is generally 30 days – when the first full month’s normal salary would otherwise have been paid – but with some policies this “qualifying period” can be 60-90 days. A further difference between mortgage insurance policies is that, after completion of the qualifying period, some will then backdate the benefits payable to the first day off work, while others will pay only from the first day after the qualifying period (effectively treating the qualifying period, therefore, as a form of policy excess).

Mortgage insurance cover is designed to throw the lifeline just when it is needed. It is intended to be a temporary safety measure, therefore, to provide enough time to recover from an accidental injury or illness or long enough to secure alternative employment following an enforced redundancy. The relatively short-term nature of the cover provided helps to keep the cost of premiums low. Typically, therefore, benefits will be payable until the policy holder is fit enough to return to work or up to a maximum of 12 months, whichever is the sooner. Some policies will extend this maximum up to 24 months, but of course the premiums will be considerably more expensive (and the majority of policy holders find that the 12-month period offers sufficient cover for the purposes for which this type of insurance is designed).

On the question of pricing, the best types of mortgage insurance cover will reflect the fact that younger age groups are likely to take fewer periods off work through incapacity and to spend a shorter time between jobs after becoming unemployed. This makes younger people a better risk from the insurer’s point of view and the advantage can be passed on to this age group in terms of significantly lower monthly premiums (the premiums for a homeowner in their mid-20s, for example, are typically half that for someone in their mid-40s). The clear lesson from this, therefore, is that the early you are able to start mortgage insurance cover, the cheaper it is likely to be.

Under one title or another, mortgage payment protection insurance can be bought from a number of sources and probably the highest profile of these is at the very place the mortgage itself is arranged – namely, the bank or building society. However, it should be noted that countless authoritative surveys have shown that mortgage insurance cover bought at the “point of sale” in this fashion is invariably more expensive than comparable standalone insurance bought from a reputable, independent insurance provider.