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Mortgage Protection Insurance Explained

Mortgage Protection Insurance a term used to encompass various types of cover. They were designed to protect borrowers from events that could severely impact their ability to maintain mortgage payments.

However, there are different variations, but when connected to a mortgage, they are all there. To help provide peace of mind and usually fall into the following categories:

  • Life Cover
  • Critical Illness Insurance
  • Income Protection
  • Family Income Benefit

Life Cover

As a rule, if the policyholder dies within the term. Then the sum assured should be enough to pay off the outstanding mortgage balance. They are ensuring borrower’s dependents left with no debt. They might not otherwise be able to manage.   

Our advisors can run through all the different types of life cover and recommend the most suitable plan for you.

Critical Illness Insurance

Critical Illness Insurance works similarly to Life Assurance. In that, it can usually taker a specific term of years. That can have different options, such as level/increase. They got designed to pay out a lump sum and, like Life cover, for borrowers. It typically has 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 and pays out. Whatever the long-term prognosis of that illness. The type of illnesses covered vary from company to company. That’s why this type of insurance cannot be solely price-driven, and we high;y recommend seeking advice.

In practice, many companies will offer Life and Critical Illness Critical cover. As a combined policy and would usually payout on the “first event.” For example, whatever happens first – either death or a severe illness – the payout is made. They can also get written on a single or joint life basis

Income Protection

Income Protection pays out a monthly amount designed to replace your wages in the event of you being unfit to work. Unlike Critical Illness cover, there are no restrictions on the illnesses or injuries covered. The only factor is whether they make you unsuitable to work. There are, however, restrictions on how much you can cover and how quickly benefits would start to get paid.

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 got written on a single life basis.

Family Income Benefit

Probably the least common of the mortgage protection type policies but can often be valuable. Particularly for those with young families. These plans can get taken to cover Life and Critical Illness. They get underwritten on an application in the same way as mentioned above.

Rather than pay out a lump sum, the cover 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. It can usually get written on a level or basis, or an index-linked basis designed to keep up with inflation.

Summary

There’s an adage that says you can never have too much insurance. Indeed, many people have one or more of the different types of policy. However, it would be wrong to think of Mortgage Protection Insurance as just an “either/or” choice. However, in the real world, affordability plays a massive part. So while it would be fantastic to cover yourself for every potential opportunity, our mortgage advisor will sit down with you and tailor the type of cover—the most suitable combination to your family’s priority and budget.

Sheffieldmoneyman.com & Sheffieldmoneyman are trading styles of UK Moneyman Limited, which is authorised and regulated by the Financial Conduct Authority.
UK Moneyman Limited is authorised and regulated by the Financial Conduct Authority.
UK Moneyman Limited registered in England, registered number 6789312 and registered office 10 Consort Court, Hull, HU9 1PU.

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