Mortgage Insurance Protection Cover explained.

Mortgage insurance protection cover comes from a stable of very useful insurance products collectively known as payment protection insurance. These cover against the risk of financial loss as a result of being off work through accident, sickness or involuntary unemployment. Mortgage insurance protection cover, of course, covers the specific risk of being unable to meet mortgage repayment obligations as a result of such incapacity or unemployment.

In return for a monthly premium – calculated in accordance with the size of the mortgage that needs to be repaid – the policy holder can then be entirely reassured that despite any sudden and unexpected loss of income arising from taken off work through accident, sickness or enforced redundancy, the mortgage nevertheless continues to be paid.

In the present economic climate, of course, such mortgage insurance protection cover can prove indispensable. No one can predict if or when they might be involved in an accident or suffer from a persistent illness that requires several months off work. Similarly, current economic uncertainties raise the risk of a growing number of employees suddenly being made compulsorily redundant. One thing is certain, though, and that is that the loss of a regular income will make it exceedingly difficult – if not impossible once any savings have been used up – to maintain the mortgage repayments. And, as everyone knows, defaulting on those mortgage commitments can ultimately put the very home at risk of repossession.

Mortgage Insurance Protection Cover from Burgesses

In press reports at the beginning of August 2008, for example, the Council of Mortgage Lenders revealed that the number of repossessions by mortgage lenders during the first six months of the year had reached their highest in 12 years, rising an estimated 48% over the same period last year to a frightening total of 18,900. In addition, a further 155,600 borrowers were more than three months in arrears with their mortgage repayments by the end of the first six months of 2008. Although the Council of Mortgage Lenders has said that neither lenders nor borrowers wanted to see homeowners lose their homes and that lenders would be conscious of “realistic alternatives” to repossession, the loss of the family home remains an all-too bleak prospect for many.

Given its power to avert such a personal tragedy, of course, this is what makes mortgage insurance protection cover such an indispensable safeguard against an unexpected, but temporary, loss of income. As evidence of an insured loss, policies will require the policy holder to have been incapacitated from working or involuntarily unemployed for a minimum period of time – generally known as the “qualifying period”. The better quality policies typically define the qualifying period as 30 days, although other policies might stipulate 60 days (or even longer).

A further difference between mortgage insurance protection cover policies – making some better value for money than others – is whether the insured benefits (the mortgage repayments) are actually backdated to the first day off work or whether payments are delayed until completion of the qualifying period (in which case, the latter imposes an effective policy excess, when the policy holder will need to find at least one month’s mortgage repayment from his or her own resources, even though the regular salary from work might have been interrupted).

In the event of a claim, benefits of the insurance policy are typically payable until the insured is able to return to work or finds another job, up to a maximum period of 12 months. Policies which extend this up to a maximum 24-month period are also available, although they do of course cost more.

Mortgage Insurance Protection Cover

Almost anyone with a mortgage can buy mortgage insurance protection cover. Eligibility is typically granted to any permanent resident of the British Isles between the ages of 18 and 64 years, who is in paid employment for at least 16 hours a week. The prospective policy holder must already have or is about to start paying for a mortgage, with their own name inscribed in the mortgage contract and, in the case of existing mortgage-borrowers, an arrears-free history of mortgage repayments.

Given the degree of security offered by this kind of mortgage payment protection insurance, the monthly premiums are surprisingly modest. Furthermore, there are none of the complicated and convoluted medical screenings and examinations often associated with life or critical illness insurance, for example.

Furthermore, an increasing number of policies also recognise the fact that younger people are statistically less likely to take time off work to recover from an accident or illness and that if they are made compulsorily redundant they will find an alternative job more quickly than those who are older. Since they represent a lesser insurance risk, therefore, so-called “age-related” insurance policies offer significantly discounted premiums to the younger age group (someone of 25 years of age, for example, being able to buy the same cover at half the price of someone aged 45). This advantage in starting mortgage insurance protection cover at an early age is then preserved for many years to come, since premiums do not increase simply because the policy holder has grown older.

When it comes to buying mortgage protection insurance cover, it will be noticed straight away that it is very widely advertised through many outlets from the local high street to the internet. Indeed, many mortgage borrowers will be offered it at the same time that they are arranging the mortgage. As with any financial services product, however, it is important to take impartial and informed advice to ensure that the mortgage protection insurance cover being offered suits the borrower’s personal circumstances and needs. Given their recent history of blatantly mis-selling this type of insurance policy, for example, it might be wise to give the high street banks and building societies a miss and buy it instead from a reliable independent insurance provider (with no vested interest in actually arranging the loan). Even the industry’s regulator, the Financial Services Authority has confirmed that standalone mortgage insurance protection cover bought from an independent insurance provider will invariably be much cheaper than a comparable product purchased at the “point of sale” from the mortgage lender.