What is mortgage protection and do I need it?
MONTHLY FEATURE | MARCH 2024
What are the different ways of protecting your mortgage repayments and how do you find out which is right for you? We take a look at insurance options for mortgage borrowers
How would you pay the mortgage if, for some unforeseen reason, you were unable to work? Or how would your family manage the repayments if the worst happened and you died before the loan was paid off?
These are difficult and uncomfortable events to consider, and this is probably why mortgage protection is not a particularly popular topic of conversation.
However, having insurance in place, which would mean you or your family were in a good place financially if the main income vanished, can bring peace of mind.
Here’s our guide to what mortgage protection is, the various forms in which it is available and how you find the right option for you.
What is mortgage protection?
Mortgage protection is a way of summarising what is essentially an insurance policy which covers you or your family if an event occurred which meant you could no longer meet the repayments.
There is a specific product called Mortgage Payment Protection Insurance (MPPI) which can be used to cover the repayments – it is a type of income protection. But you can also protect yourself using income protection, critical illness cover and life insurance.
The many options can seem very confusing so here is a brief summary of each.
What type of insurance is available? A brief guide
Income protection and mortgage protection insurance are both types of cover which can be used to pay the bills if you unable to work. It will cover a percentage of your income and this will be used to cover outgoings. Mortgage payment protection insurance will only cover your mortgage whilst income protection will cover all household bills.
Life Insurance will cover the finances after your death, providing your family with money to pay bills and maintain their lifestyle.
Critical illness cover will provide financial protection if you face serious illness and cannot pay the bills. It can help fund medical treatment too but it usually ends once the payout is made. For this reason, if you were to die after the policy ended, you would not receive any more money. Here, life insurance would then be required.
Family income benefit effectively replaces the salary in the event of death. So, instead of a lump sum being paid out as would occur with life insurance, it is paid out by the insurer as monthly payments to help maintain lifestyle and bills.
What type of protection is right for me?
The above explanations are only very brief and designed to give you an overview of what type of insurance is available.
To find out what type of cover would be best for you, it’s a good idea to speak to a broker who specialises in protection.
Make sure you find out all the options available to you and how they work.
If you decide you don’t want to use a broker, make sure you get lots of quotes from insurers and compare what they are offering and how much they will cost.
It’s also a good idea to check what insurance and protection you already have in place. For example, what sickness cover are you entitled to at work and does your employer offer death in benefit service?
Do I need mortgage protection to take out a mortgage?
Having insurance to cover your mortgage repayments is not compulsory.
Whilst your mortgage broker is very likely to broach the subject with you, it is not a condition of your mortgage to take out a policy.
A good broker should offer you clear guidance on your options without pushing you to sign up.
If you are wavering and not sure whether you need to take out insurance, ask yourself what financial back-ups you have in place if anything were to happen which would prevent you paying your mortgage.
