It’s understandable if you are hesitant to buy anything labeled Payment Protection Insurance, or PPI.
After all, it was an insurance product poorly sold to thousands of borrowers, forcing banks and lenders to compensate people to the tune of over £ 50 billion.
Mortgage payment protection insurance, however, is a different beast – and could actually be quite a valuable policy to hold.
Since your mortgage is likely to be your biggest monthly expense, this policy is designed to pay and cover your repayments if you are unable to work, due to illness or layoff.
There are several types: you can buy a policy that only pays if you lose your job, one that pays if you get sick or injured (accident and sickness policy), or one that pays for any of these events.
If you need to make a claim, you will receive a set amount on a monthly basis to cover your mortgage payments, usually for about two years.
You can set your installments to cover other bills. If you do, the maximum payment you can expect is around 125% of your mortgage costs.
Alternatively, you can set your payout as a percentage of your salary – this is usually capped at 50%.
The downside to mortgage payment protection is that it may not cover all of your needs.
If you have been sick or unemployed for more than two years, you will no longer get benefits.
In this case, an income protection policy may be more appropriate.
They require a medical assessment and can be more expensive than a mortgage-related policy.
There are other essential features of mortgage protection insurance that you should be aware of.
There is usually a period of time you have to take time off work to file a claim – typically anywhere from 30 days to 180 days.
The longer you wait, the less expensive your policy will be.
If your employer has Long Term Sickness Benefit, which will continue to pay all or a percentage of your salary for a certain period of time, it may be beneficial to select a longer “moratorium” period to reduce costs because your reimbursements will be covered by your salary before the start of the insurance.
What you do for a living will affect the price you pay.
Office workers will be cheaper to insure, and those who work in construction or manual workers will be more expensive to insure.
You are generally not covered for pre-existing medical conditions that recurred in the 12 to 24 months prior to the purchase of the policy.
There will be other medical exclusions, so ask your broker to explain them to you.
I also suggest taking out life insurance, which covers your mortgage amount. You can set it so that the amount of your coverage decreases as you pay off your mortgage (decreasing term coverage).
If you are young and healthy, life insurance can be cheap and will ensure that your heirs can inherit your property and its value in full, rather than having to sell and return the money to someone else. lender.
Gareth Shaw is Head of Monetary Content at the consumer choice brand who.co.uk.
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