Summary

When people take out a mortgage, they usually buy life (Medical Insurance ) insurance, however there are a number of other situations that could make it impossible for you to meet your mortgage repayment schedule. This article discusses other issues that you need to think about.

Mortgage Protection insurance - the essentials

Author: Anna Richardson

1. What happens if interest rates increase and you can no longer afford your monthly repayments
2. What if you get made redundant
3. What happens if you become ill or have an accident and you cant go to work
4. What if you have a serious accident or become critically ill, and you can never go back to work
5. What if you die and your family is left to cope with the outstanding mortgage

These are all questions that new homeowners have to ask, and find ( cheap mortgages ) answers to. The good news is, the insurance industry have it covered, and there are policies out there that can provide peace of mind against all these possibilities.

On the subject of rising interest rates, you are unfortunate if you end up in the position where you cant afford the repayments, because there are mortgages that help protect you from this. The fixed rate mortgage sets a rate for an agreed period of time in which your interest rate remains the same irrespective of the Bank of ( car insurance cover ) England base rate. A capped mortgage allows your payments to fluctuate, but there will be an agreed rate at which the interest rate that you pay will be capped. Capped mortgages protect you for an average of 3-5 years, and then, as with the fixed rate mortgage, it will revert to the standard variable rate.

55% of all new mortgages are fixed rate deals, so they are by far the most popular type of mortgage. The capped mortgage is less popular because it still retains an element of risk, and they can be more expensive at the outset, which deters a lot of potential customers. At the end of the protected period, for both types of mortgage, you can choose to re-mortgage with another company without paying any penalties. Its a good idea to keep your eye on the available offers as the end of the protected period approaches, because there are likely to better deals out there. The market is so competitive that new offers are always arising, and they are particularly focused on attracting re-mortgaging customers. Ask a mortgage broker to see what else is out there, as they have all the latest information to hand. You dont have to commit yourself to anything. (medical insurance)

If you want to insure yourself against the possibility of losing your job, then you need Mortgage Payment Protection Insurance. However its important to be aware that this type of insurance is designed to protect those that are made redundant, not those that resign or are dismissed. We found quotes on the Internet for around £2.45 per £100 of monthly mortgage payment. Once you stop working, the insurance will start paying after 30 days and then for a maximum of 12 months. You can buy this insurance through your mortgage lender but we dont recommend it, they always charge more than their internet rivals.

You also have the choice of covering your mortgage payments due to sickness or illness keeping you from working. However we recommend checking with your employer first to see if they have a sickness payment plan in place. Some companies will give their employees full pay for six months for accident or illness. Even in this case, its still worth getting the insurance because you could be off work for more than six months. It would be very difficult to meet the mortgage repayments on statutory sickness benefits alone. This type of insurance also costs £2.45 per £100 of monthly mortgage payment, but you can combine it with unemployment cover and its £3.95 per month, which is less than buying the two separately. Both will cover you for a maximum of 12 months, so you really need to consider what would happen if a serious accident or illness left you permanently unable to work.

The insurance industry estimates that 1/5 of men and 1/6 of women have to permanently leave work before retirement age because of a serious illness or accident. Think about it, if you have a heart attack at the age of 45 then you are unlikely to go back to work again. With a family to support, this could be disastrous.

In this case, then you would need Critical illness insurance - it covers the outstanding mortgage in full if you are unable to work again. Look out for "total and permanent disability" cover - it is essential that it is included in the policy as it specifically covers the possibility of you not working again due to accident. (secured loan)

There are a few options to look out for with Critical Illness Insurance - for example you need "decreasing cover" if you have a repayment mortgage. This is so the value of the payout decreases in line with the value of your outstanding mortgage. It is also cheaper than the alternative: "level cover". You need this if you have an interest only mortgage because the outstanding mortgage balance will remain the same.

Make sure you know all the facts about the insurance you buy, because there will be times that you cant make a claim. For example, Critical illness Insurance requires you to survive for a period following an accident or diagnosis of a critical illness, usually 28 days but sometimes 14 days. If you die before that time, then no claim can be made on your policy.

To cover the possibility of you dying within 28 days, then you need mortgage life insurance. Many lenders require you to set up a mortgage life insurance policy as a condition of you taking out the mortgage. You dont have to buy it through the lender however, in fact it will be a lot cheaper if you dont. Also if you live alone and do not have to support a family, you dont necessarily need this type of insurance as the lender will recoup the money for the outstanding mortgage by selling off the property. (cheap home insurance)

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