Mortgage Protection Insurance is an umbrella term that encompasses different types of cover. The aim is to protect borrowers from events that could affect their ability to keep up with mortgage payments. When connected to a mortgage, they provide peace of mind and a sense of security to the borrowers.
There are generally two types of life cover; “Whole of Life” or “Term Assurance.” The whole of Life cover is guaranteed to pay out a lump sum on death, whenever it occurs. Term Assurance pays out if you die within a specified term of years.
There are also different types of term assurance – for example, “level,” “increasing,” or “convertible.” The type most commonly used as mortgage protection these days is “Decreasing Term Assurance.”
If you look at linking this to a repayment mortgage, the sums assured reduces at roughly the same rate as the mortgage balance. Because the risk to the insurer diminishes over time, the premiums are generally cheaper than other types of life cover if the policyholder dies within the term.
Then the sum assured should be enough to pay off the outstanding mortgage balance. Getting this should ensure the borrower’s dependents do not get left with a debt they might not otherwise be able to manage.
Some people say that life cover gets taken for the benefit of other people. Because, sadly, you won’t be around to see any interest.
However, these days, many people in Sunderland survive conditions that once might have been fatal. Nevertheless, while undergoing treatment and recovery, it could affect your ability to meet your financial commitments. Leading to the development of Critical Illness cover in Sunderland.
Working in a similar way to Life Assurance, in that gets taken for a specific term of years. It can also have different options, such as level/increase.
They get designed to pay out a lump sum and taken on a decreasing term—basis in line with the reduction of your mortgage balance. The key is that the benefit gets paid if you fall victim to one of several specified critical illnesses.
It will then pay out whatever the long-term prognosis of that illness. The type of illnesses covered varies for each provider. In general terms, insurers usually cover between 40 – 50 specified conditions, including cancer, heart attack, and stroke. Pay-outs depend on meeting the required level of seriousness of the particular situation suffered.
The life companies all work to at least the pre-designated clinical definitions as prescribed by the Association of British Insurers.
What we mean is they can’t just arbitrarily decide that you’re not ill enough. Hopefully, if your treatment is successful, it means that you can benefit by no longer having a mortgage to pay after your illness.
In practice, many companies will offer Life and Critical Illness Critical cover as a combined policy. Usually, a pay-out on the “first event,” i.e., whatever happens first, either death or severe illness. They can also get written on a single or joint life basis.
Whereas Life and Critical Illness cover pay out a lump sum, “Income Protection” pays out a monthly amount. They got designed to replace your wages in the event of you being unfit to work in Sunderland. Unlike Critical Illness cover, there are no restrictions on the illnesses or injuries covered.
The only factors being whether they make you unfit to work. There are, however, restrictions on how much you can cover and how quickly benefits would start to get paid because the insurers want you to have an incentive to return to work rather than being better off on sick.
Typically, the most you can cover would be approximately 55%-65% of your income. Benefits would begin to get paid after a “deferred period.” Usually, it equates to the length of time you would receive sick pay from your employer.
Benefits would continue to get paid for as long as you remain unfit to work. Or until the policy term ends, whichever comes first. However, to make premiums cheaper, most companies offer a “budget” option whereby benefits would get paid for a shorter period.
Usually between 2-5 years – to at least allow you to make alternative arrangements. In case it looks like you’ll get incapacitated for longer than that.
Like Life and Critical Illness Cover. These policies are underwritten based on your health and lifestyle at the time you apply. All income protection policies get written on a single life basis.
Similar in many ways to Income Protection, you are covered by these policies if made unemployed. Benefits get usually linked to your mortgage and other costs (rather than necessarily your wages). It would usually be paid one month “in arrears” after a successful claim.
These policies only get underwritten at the time of a claim. Rather than at the outset, which can sometimes mean there can be some confusion/delay as to whether demand would get met.
They are a useful safety net if you get made long-term unemployed. But be sure to check the details of how/when any unemployment benefits would get paid out. As it may be that you would have returned to work before any monies become due.
Probably the least common of the “mortgage protection” type policies. However, these can often be valuable, particularly for those with young families in Sunderland. These plans can get taken to cover Life and Critical Illness and get underwritten on the application.
Unlike the traditional forms of policy or instead, pay out a lump sum. The covers would pay an annual or monthly income for the remainder of the term of the plan. Thus, it can replace the income of the primary breadwinner for several years.
Dependent upon a particular client’s circumstances. Because of this would usually be written on a level or basis. Or an index-linked basis designed to keep up with inflation.
There’s an adage that says you can never have too much insurance whether you are a First Time Buyer in Sunderland. A Buy to Let Landlord in Sunderland, or ready to Remortgage in Sunderland, looking into insurance is always hugely beneficial.
Many people have different types of policies, and it would be wrong to think of these as an “either/or” choice. You can have more than one kind of Mortgage Protection Insurance. However, in the real world, affordability plays a massive part while it would be fantastic to cover every type of Mortgage Protection Insurance.
A good Mortgage Advisor in Sunderland like us will sit down with you and tailor the type of cover to be the most suitable combination to your family’s priority and budget.
If you do take more than one policy, your Mortgage & Protection Advisor in Sunderland, typically, we would usually place all the cover with one provider. To help save you the additional policy administration charges which individual policies carry.
Date Last Edited - 14/05/2020