For homeowners concerned about job security or how they would pay their bills if they could not work due to sickness, income mortgage protection is aimed at removing the stress by providing extra financial support.
The job of this cover is to pay the mortgage while the homeowner looks for another job or recuperates from an accident or illness.
Mortgage cover is a debt specific insurance – that means homeowners take the cover with the intention of protecting their mortgage repayments and if the policy pays out, the money generally goes direct from the insurer to the lender.
Taking out the insurance is easy. Mortgage lenders normally offer the cover when someone takes out a mortgage or second mortgage on their home.
It’s not a good idea to take the first offer, as other, cheaper products may be available from specialist insurance providers that offer similar or better cover.
The lender cannot make taking their payment insurance a condition of the loan.
In fact, whether a borrower takes the insurance out at all is optional.
State benefits might be a further option for some homeowners who lose their jobs or are too ill to work.
The trouble is state benefits are limited and do not kick in until 13 weeks after the claim. Even then, the benefit only covers mortgage interest on the first £200,000 of borrowings.
Another criteria is the homeowner must have less than £16,000 savings to qualify as well.
Savings are not taken in to account by income mortgage protection providers.
For homeowners who have had a mortgage since before October 1995, other less strict rules might apply.
Mortgage payment insurance was often paid as a single premium with interest running alongside the loan, but many banks and building societies have now withdrawn this cover following criticism from independent financial watchdogs.
Many people thought it unfair that if a single premium was paid, interest was charged on the payment when people paying monthly premiums paid no interest but had the same cover.
The amount paid depends on the monthly mortgage repayment.
For instance, if the homeowner’s mortgage repayment is £500 a month, then the monthly premium is five times the lender’s cost for £100 of income protection cover.
Payment insurance can be cancelled. Most policies have a 30-day cooling off period from signing the contract that allows the applicant to withdraw. The policy can also be cancelled at anytime by giving notice to the provider according to the terms and conditions of the policy.
Homeowners should always make sure they read the policy small print before signing up to any income mortgage protection agreement to make sure their personal financial circumstances tie up with the policy conditions.
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