What insurance

What insurance do you need to take with your mortgage?

According to research carried out by a British team into the origins of language there are 27 words which have been used in most languages for over 15,000 years. Not surprisingly two of these words are ‘you’ and ‘I’ proving that people have always valued themselves and those close to them.

I would like to take this a step a further, if I may, and relate this to the need to protect ourselves against unexpected problems. This leads nicely into the need to consider taking an insurance policy alongside your mortgage. I have written before about the importance of income protection cover but this time I wanted to look into the actual requirement as it can be confusing.

  1. What is the requirement?

 It might surprise you to learn that the only insurance requirements placed on you is building insurance. This type of insurance covers the cost of repairing damage to the structure of your property through damage caused by fire, explosion, storms, floods or earthquakes.  Your Broker or lender may recommend that you take up content insurance along side this but even this is not a must.

  1. Is that enough?

This is a question you should ask yourself and particularly what will you do in the event that you fall behind on your payments. It’s important because if this happens for whatever reason, your credit score may suffer and you can lose your home through foreclosure.

  1. What can you do to protect yourself and your family?

To ensure that you are able to cover your mortgage payments at all times you should consider Income Protection insurance. IP insurance as it also called provides cover if you’re not able to work. Generally, the maximum amount of income you can recover through IP insurance is around 70% of your gross monthly earnings (your earnings before tax), but note that the payout is normally tax-free. You can choose to insure a smaller percentage than that, which will mean your premiums should be lower.

Typically, there are three areas that you can be protected against – accident and sickness only, unemployment only and the more comprehensive, accident, sickness and unemployment cover. Policies can be purchased using the following products types:

  • Payment protection insurance: or PPI, provides cover for loan repayments and/or minimum monthly credit card payments should you be unable to work.
  • Mortgage payment protection insurance: can provide policy holders with a pay-out which is equivalent to their monthly mortgage payments during the period that they’re unable to work due to accident, sickness or unemployment.
  • Unemployment protection insurance: also known as redundancy insurance – could provide cover should you find yourself out of work by paying out a monthly sum for a predetermined period.

There’s a waiting period before the payments start. You generally set payments to start after your sick pay ends, or after any other insurance stops covering you. The longer you wait, the lower the monthly payments.

I hope this is helpful and helps to understand mortgage insurance better. I am always happy to review your specific circumstances so get in touch if you need some advice.

 

“Payment Protection Insurance is optional.  There are other providers of Payment Protection Insurance and other products designed to protect you against loss of income”

 

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