An article setting out types of long-term incapacity cover that can be used for mortgage protection insurance purposes.
Besides life insurance, the main type of mortgage protection
insurance is mortgage payment protection insurance (MPPI). This type of
mortgage cover will pay for home loan repayments should the policyholder suffer
accident, sickness or unemployment (redundancy). MPPI is great for covering
short-term illness or injury but policies only last for a maximum of 24 months
which leaves mortgage holders with a large gap in protection in the long-run.
Although not generally specific to home loan protection, critical illness and
income protection policies can be used for long-term illness and injury cover
for mortgages. The specifics of each policy are outlined below.
Critical Illness Cover
Critical illness cover can easily be added to mortgage life
insurance policies. Like life insurance, critical illness policies will payout
a (typically) tax-free lump sum. For the policy to payout the policyholder will
have suffered a critical illness specified in their policy wording document.
Illnesses covered include heart attack, stroke and cancer (leading policies
will include about 35 critical illnesses). This means that if a mortgage holder
suffers serious illness or injury they can claim on their critical illness
policy and then pay off the entirety of their home loan (provided they set the
sum insured equal to the loan amount). Much like life insurance the policy term
can be set decades into the future but for mortgage protection it makes sense
to set this term equal to the loan term.Income
Protection Insurance
Much like mortgage payment insurance, income protection cover pays out a monthly
benefit due to sickness or injury. The big difference is that income protection
policies insure earnings and not loan repayments, and can last all the way up
until retirement. This means that the policyholder can insure not only their
home loan payments but also their living expenses also. If a claim needed to be
made the policy would pay a monthly benefit until either the policyholder
returned to work or the policy term ended. It is common for policies to last
until 65 years of age but for mortgage protection cover purposes it makes sense
to set the policy end date equal to the loan end date. It should be noted that
unlike mortgage payment protection, income protection does not cover redundancy
at all.
This article was produced by James P White of Drewberry Mortgage Insurance, specialist providers of information, advice and
broking services in the mortgage life cover and mortgage payment protection
insurance markets.
