Having a mortgage is a big responsibility. This is why many people decide to take out insurance in case they cannot pay. However, there are different types of insurance and it can be confusing as to which to take out.
What is Mortgage Payment Protection?
Mortgage payment protection insurance will pay out if you are unable to cover the cost of the mortgage due to being out of work or unwell. It usually will pay out for up to a year of the policyholder being out of work.
What is Mortgage Life Insurance?
Mortgage life insurance is an insurance that will pay out a lump sum to cover the cost of the mortgage if the mortgage holder dies.
Do I Need Mortgage Payment Protection?
Mortgage payment protection is useful for people who will struggle to make their mortgage payments if they are out of work. This means that it is no use for people who are out of work. It only pays out for a year, so if your company pays sick pay for that period, then you may not need it. However, you will still need to consider what may happen if you are unemployed. You may find that your mortgage company will allow you to have a payment holiday, which would give you time to find a job or recover from your illness. You may also have enough savings to cover the mortgage repayments for a year and therefore have no need to take out the policy.
Many people feel very negative towards payment protection insurance. However, there is not necessarily anything wrong with the insurance itself. The problem comes when it is sold to those who do not need it, such as people out of work or it is added on to a mortgage without the mortgage holder being told. Another instance of misleading selling pratices is when the person is told the insurance is compulsory, when it is not.
The insurance could be useful in some circumstances. It can provide peace of mind for people who feel their job is at risk or they are likely to be unwell and they would not be able to manage their mortgage repayments. It would mean that they would have less chance of losing their home, as their mortgage payments would be taken care of.
Do I Need Mortgage Life Insurance?
It is essential that everyone with a mortgage have mortgage life insurance, the mortgage company will insist. They will want to make sure that if either party named on the mortgage dies the mortgage gets paid off. This will secure their investment.
Having this insurance is not a bad thing and will not be that expensive as long as you are young and healthy. It will mean that you will also have the peace of mind that if you die, your spouse and children will have somewhere to live and not have to worry about paying for a home. If you are on your own it will mean that the house can be sold and value added to your estate for your beneficiaries.
Is it Worth Paying Out for Both?
As you will already have mortgage life insurance, you may wonder whether mortgage payment protection is worth having as well. They both provide cover for different things and so it could be worth having both. It will be up to you to decide whether the payment protection will be of use to you. If you have no savings and an insecure job, then it could be wise to get this cover, especially if you have dependents relying on you having a home for them. It will cost money and it is worth finding out how much you will have to pay out so you can work out whether you can afford to pay that much out each month.