A mortgage is a big commitment and not everyone will always be able to keep up with theirs – and this can be a major concern. A sudden loss of income can quickly lead to a home loan crisis as this type of borrowing on a property normally involves the biggest regular outgoing for an individual. It is also secured against the home itself, meaning repossession is a real threat if the bank doesn’t get its money. But did you know borrowers can protect their ability to keep up with their mortgage commitments with mortgage protection, a form of financial insurance?
Mortgage protection, also referred to as mortgage payment protection insurance (MPPI), is a policy which will provide payouts if someone is unable to keep up with repayments through losing an income through no fault of their own. The inclusive circumstances are usually long-term sickness, injury from an accident and involuntary redundancy. The payouts themselves normally start to arrive following a 30 day initial period after a claim and arrive tax free into the policyholder’s bank account.
It is important to consider the fact that a mortgage protection product will not normally provide funds for 100 per cent of a person’s monthly mortgage repayments. A portion of about 50 per cent is the normal starting point and cover can sometimes be arranged for a greater slice – say 70 per cent, although naturally this will typically attract a bigger premium.
Some policies will provide protection for a policyholder who has to leave their job and therefore loses their income because they have to become someone’s full-time carer – it is always worth double checking with an insurer and reading the policy small print if you are unsure whether or not it will fit your needs.
So, how long will a policy pay out for once a successful claim has been made? Not indefinitely is the short answer, and most will provide support for 12 months, although some will stretch to 24, depending on the insurer
Mortgage protection can sometimes be sold ‘at point of sale’ when a person is taking out the home loan. This means a policy might be offered by the home loan lender themselves, and cover which is supplied in this way can sometimes be of poor value. Instead, a borrower could try shopping around and may want to try some more independent cover suppliers which can offer better deals than the bigger high street lenders. One such firm is protection specialists British Insurance. Simon Burgess, managing director of the company, says: “There is no need to worry unduly about the risks of suddenly not being unable to keep up with repayments. Mortgage protection can help take away the concern of what might happen if you are unfairly stripped of your income.”
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