Most people at least try to keep something aside for a rainy day, but how many of us actually have disciplined savings? For example, how long would you be able to carry on paying your financial commitments if you suddenly lost your income? Those with a mortgage are arguably particularly at risk as failure to keep up with repayments can lead to repossession. But this uncertainty can be eased by a mortgage protection policy, effectively a form of insurance helping to protect your ability to pay.
A payment protection product, mortgage protection effectively pays you a cash lump sum every month if you happen to lose your income. To qualify for a successful claim, you will need to have lost your income due to involuntary redundancy, illness, or injury after an accident. For example, you may find your employer’s sick pay scheme expires before you are fit and well again, meaning you can rely on mortgage protection if you have a policy in place.
There’s usually a waiting period of at least 30 days after a successful claim, after which your insurer will pay tax free cash lump sums to you. This continues either until you are in work again or until the policy expires. It will also stop paying out in the unlikely event the mortgage happens to be paid off. How much you get depends on the insurer and the product, but the normal procedure is to provide somebody with a percentage of their income, so you effectively insure say, 50 per cent of your salary.
Different amounts are available, so a provider might allow you to cover 60 or 70 per cent in exchange for a higher premium. One hundred per cent coverage of your salary is rare to the point of being virtually non-existent.
However, what you do get can go towards all of your home loan related costs, including the repayments on the interest. It can even go towards the likes of council tax and utility bills. There is normally no set schedule on what you have to spend the money on, and you are free to spend as you wish.
The benefits of this are twofold, firstly there is peace of mind that you will get a helping hand should you ever lose your income through no fault of your own. Secondly, if it is needed it can prove the difference between repossession and holding on to your home, and can help take away some of the stress associated with being out of work.
One of the few complicated parts of this type of insurance involves actually looking for it. Although many high street insurance companies you will no doubt of heard of will be able to provide you with a policy, they may not be the best option. Although it can be simple to go with your existing insurer, shopping around more independent firms for a mortgage protection policy, such as protection specialists British Insurance, could save you pounds the long run.
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