The largest debt for most households is the mortgage on their home. To keep up to date on mortgage payments is normally dependant on one or more members of the household having a full-time job. If you could not work through illness, accident or redundancy, would you be able to keep up with the mortgage payments? If your answer is that you would find it difficult or impossible to pay the mortgage for an extended period of time, then you need mortgage insurance.
Mortgage payment protection insurance is designed to pay the mortgage if you have an accident or sickness that prevents you working. Some policies will also cover you for unexpected redundancy.
Do you have enough savings?
Most mortgage insurance policies will pay the mortgage for up to a year, or until the policyholder returns to work. If you have enough savings to cover this period, you may not need mortgage insurance.
A recent report on the website MoneyFacts.co.uk revealed that 27% of UK people have no significant savings, and 32% said that they had saved nothing in 2016. Another 34% said that they withdrew more from their savings than they put in during 2016. Clearly, many Britons would struggle financially if they lost their job.
Sick pay and benefits
If you cannot work because of sickness or an accident, then you will receive sick pay from the state and your employer may have a sick pay scheme. This could help towards mortgage payments, but often, employer benefits reduce to half your pay after a short period. State benefits are rarely enough for both mortgage repayments and household expenses. Few can rely on benefits to cover the entire mortgage payments, which is why it makes sense to take out mortgage insurance.
How much is paid out
You will start receiving regular payments to cover the mortgage between 31 days to 60 days after you leave work, though payments will be backdated to the date that you left. There is a cap on monthly payments of between £1,500 and £2,000. This should cover the repayments of most mortgages. If you mortgage is larger than this you will need to look at how you can pay the surplus.
There are some alternatives to mortgage protection insurance that are worth considering. Income protection insurance pays a regular amount if you cannot work. The amount paid is a percentage of your salary. Typical policies pay out 50% of your salary. The money you receive from a claim can be used for any purpose, not just to pay off the mortgage.
As well as mortgage insurance, you should also take out life insurance that will repay the whole mortgage if you should die before the mortgage has been paid off.
Where to purchase mortgage protection insurance
The best way to buy a mortgage insurance policy is through a broker, and Ascot Mortgages can find the best policy to suit your financial position. Your first step to protect you and your family is to talk to an insurance expert within our friendly team.