Protect Your Residence With Mortgage Protection Insurance
Article by Serena Simpson
They say that an Englishman’s home is his castle but in some cases through no fault of your own you could lose everything you have built up around you. If you were to find yourself out of work due to becoming unemployed or after suffering an illness or accident that would keep you from earning a living, you could struggle to pay your mortgage. If you cannot pay your mortgage then you would be at risk of having your lender seek repossession. If you want to safeguard your castle then you need to consider taking out mortgage protection insurance.
Mortgage protection insurance would provide you with the sum you insured against when taking out the policy. You are able to insurance up to a certain amount of your monthly mortgage repayment each month, the exact amount can be found in the terms and conditions of the cover. It is essential to read the small print as you are able to find when the policy would begin to provide an income and for how long it would pay. The terms differ greatly so you have to compare this along with the cost. There are some providers that would allow you to claim on your mortgage payment protection after just 30 days of being unemployed or incapacitated. However some ask that you wait to put in claim until the 90th day. A policy can run with some providers for 12 months, with others you might get 24 monthly payouts.
When taking out mortgage payment protection you can also tailor the policy for your circumstances. For example you might not need to cover against accident, sickness and unemployment together. If you wish to take out cover to insure against unemployment only you are able to do so. If you just want to safeguard against the possibility that you might fall ill or suffer an accident you can take cover for this also.
Mortgage payment protection has in the past suffered from problems along with the rest of the payment protection policies. Problems started for the sector in 2005 when the Office of Fair Trading received a complaint that consumers were getting a poor deal. Following this an investigation began into the sector which resulted in several fines being handed out to well know high street names. The majority of problems lie with high street lenders failing to hand out adequate information at the time of selling cover. Another major problem with taking a policy out alongside the mortgage is the huge cost that is added onto the loan.
High street lenders bring in around £4 billion each year by selling payment protection which includes mortgage protection insurance. By choosing to take out your policy independently with standalone specialist providers you are able to get a cheaper quote that is age based. The premium would also depend on your age when taking out the cover and the level of protection you wished to take out. Covering your mortgage is essential as you never know what might be around the corner. However it does not have to cost a fortune.
If you’ve recently purchased a home or refinanced your current mortgage by now you’re mailbox has been inundated letters that look like they are coming from your lender -but they really are not.
These solicitations are coming from Mortgage Protection companies that paid good money to search public records to find you. So, is Mortgage protection necessary? The answer is ‘Yes and No.’ That may sound contradictory, but stay with me.
First, understand that Mortgage Protection (also called Mortgage Protection Insurance) is completely different and in no way related to mortgage insurance. This is the biggest misnomer and easily confused.
Mortgage Insurance is a fee that charged by the lender to protect them if you happen to default on the loan. There are ways to avoid MI, for instance, by making a down payment of at least 20%. The lender typically does not require MI when you have enough of your own skin at risk.
If you don’t have enough to put down, they make you pay the MI fee which is rolled into your monthly payment. Should you default on your loan, the MI you’ve been paying will help them recover the money owed. MI does nothing to benefit you, the borrower.
Mortgage Protection on the other hand, is for you, the borrower. Should something change and make it difficult for you to pay your mortgage, Mortgage Protection is there to keep you afloat so you DON’T default on your loan.
Secondly, understand that ‘mortgage protection’ is life insurance structured to span the length of the loan. Regardless of the bells and whistles it may have, all Mortgage Protection plans offered are life insurance contracts.
* If you have a very nominal balance on your mortgage* Carry adequate permanent life insurance that has cash availability or* If you have resources to pull a substantial amount of money from
Then ‘No,’ you can probably forgo Mortgage Protection insurance.
That being said, ‘Yes,’ you need mortgage protection if you fall into the category with 97% of Americans.
* If you do not have the principle balance of your loan laying around somewhere* If you would be impacted by reduced or temporary loss of income* Or if you share the mortgage payment with someone and are dependent on them to do so.
Don’t listen to people who won’t be there to help you if one of these situations were to occur. I’ve read unintelligent writings from people proposing taking 0 and putting it in a safe investment to get a better return over a particular period of time.
This is nonsense. The objective is not to see how much money you can earn by putting what you pay in premiums and investing it. If you’ve ever been involved in a car accident or had water damage in your home, when the claims adjuster sent you the check for the full amount of your loss, I’m sure you were not griping about being able to have the same amount somewhere else had you saved the money yourself.
It doesn’t take a genius to figure out that Insurance is the cheapest money you can buy. By paying a monthly premium cheaper than most cell phone plans, you can instantly secure a 1/2 million dollar benefit should you ever need it. Now that, as they say -You can’t beat with a bat!
So to review: Most of us with a mortgage, should consider Mortgage Protection, especially during the first 15 years of the mortgage when you have the least equity and your expenses are on the uptick.
Be very cautious moving forward, however. There are lots of Mortgage Protection products out there. There are even lenders offering similar programs, but there is a lot to understand before you purchase. Feel free to check out my article “Top 10 Hard-to-Find but Must Have Features on your Mortgage Protection Policy” for more detail.
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