What is mortgage protection insurance?
Most people have heard of Lenders Mortgage Insurance (LMI), which you might be asked to buy if you take out a mortgage and have only a small deposit. Mortgage lenders use LMI to protect them against the borrower defaulting on their repayments. However, you may not have heard of Mortgage Protection Insurance (MPI), which may be much more useful to you as a borrower. It is specifically designed to help you meet the cost of your mortgage in the event of death, disability, illness or even involuntary unemployment.
Many people believe that if they already have income protection insurance, they don’t need mortgage protection insurance. Income protection insurance is designed to replace up to 75 per cent of your income if you are unable to work due to illness, injury or disability. However, if you are in this situation, would you be able to continue meeting your mortgage payments and your other livings costs, as well as making provision for tax on only 75 per cent of your earnings? This could be difficult, especially if you are facing extra expenses associated with your illness.
Unlike income protection, MPI will only take care of your mortgage, leaving you with your whole income protection benefit to cover those other important living expenses.
With mortgage protection, you also have the ability to tailor a policy to meet your specific needs. You can generally opt for cover for life and disability, life only, or disability only, with some policies including involuntary unemployment if certain criteria is satisfied.
Depending on the cover you chose, you can have your mortgage paid out, with any excess funds paid to your estate in the event of your death. Alternatively, you can have peace of mind knowing your repayments will be covered on your behalf in the event of disability or involuntary unemployment.
Best of all, you don’t need to undergo any medical assessments, fill out lengthy insurance questionnaires, or be working to apply for cover in some instances. Some lenders may even enable you to have the premiums for your cover incorporated into your loan.
MPI is yet another valuable insurance that can protect against the adverse financial implications from death, disability, illness or injury. Not only covering you and your loved ones, it can also be used in conjunction with other insurance policies to provide you with the highest level of protection.
To find out if this type of insurance is worth your while considering, contact your financial adviser today.