Docstoc

Mortgage_Protection_Insurance___The_Essentials

Document Sample
Mortgage_Protection_Insurance___The_Essentials Powered By Docstoc
					Title:
Mortgage Protection Insurance – The Essentials


Word Count:
1440


Summary:
It's tempting to sit back and relax once you've moved into your new home – but hang on, have you made
sure that you're insured against all the risks that could stop you from paying your mortgage? Many things
could go wrong and make it impossible for you to work, and in this article we go through each risk, and
assess how important it is that you take that into account. If you are responsible for a family, then it is
particularly important that you take heed of the following f...



Keywords:
mortgage,protection,insurance



Article Body:
It's tempting to sit back and relax once you've moved into your new home – but hang on, have you made
sure that you're insured against all the risks that could stop you from paying your mortgage? Many things
could go wrong and make it impossible for you to work, and in this article we go through each risk, and
assess how important it is that you take that into account. If you are responsible for a family, then it is
particularly important that you take heed of the following five issues:


What happens if interest rates increase and you can no longer afford your monthly repayments


What if you get made redundant


What happens if you become ill or have an accident and you can't go to work


What if you have a serious accident or become critically ill, and you can never go back to work


What if you die and your family is left to cope with the outstanding mortgage


These are all questions that new homeowners have to ask, and find answers to. The good news is, the
insurance industry have it covered, and there are policies out there that can provide peace of mind against all
these possibilities.


On the subject of rising interest rates, you are unfortunate if you end up in the position where you can't
afford the repayments, because there are mortgages that help protect you from this. The fixed rate mortgage
sets a rate for an agreed period of time in which your interest rate remains the same irrespective of the Bank
of England base rate. A capped mortgage allows your payments to fluctuate, but there will be an agreed rate
at which the interest rate that you pay will be capped. Capped mortgages protect you for an average of 3-5
years, and then, as with the fixed rate mortgage, it will revert to the standard variable rate.


55% of all new mortgages are fixed rate deals, so they are by far the most popular type of mortgage. The
capped mortgage is less popular because it still retains an element of risk, and they can be more expensive at
the outset, which deters a lot of potential customers. At the end of the protected period, for both types of
mortgage, you can choose to re-mortgage with another company without paying any penalties. It's a good
idea to keep your eye on the available offers as the end of the protected period approaches, because there are
likely to better deals out there. The market is so competitive that new offers are always arising, and they are
particularly focused on attracting re-mortgaging customers. Ask a mortgage broker to see what else is out
there, as they have all the latest information to hand. You don't have to commit yourself to anything.


If you want to insure yourself against the possibility of losing your job, then you need Mortgage Payment
Protection Insurance. However it's important to be aware that this type of insurance is designed to protect
those that are made redundant, not those that resign or are dismissed. We found quotes on the Internet for
around £2.45 per £100 of monthly mortgage payment. Once you stop working, the insurance will start
paying after 30 days and then for a maximum of 12 months. You can buy this insurance through your
mortgage lender but we don't recommend it, they always charge more than their internet rivals.


You also have the choice of covering your mortgage payments due to sickness or illness keeping you from
working. However we recommend checking with your employer first to see if they have a sickness payment
plan in place. Some companies will give their employees full pay for six months for accident or illness.
Even in this case, it's still worth getting the insurance because you could be off work for more than six
months. It would be very difficult to meet the mortgage repayments on statutory sickness benefits alone.
This type of insurance also costs £2.45 per £100 of monthly mortgage payment, but you can combine it with
unemployment cover and it's £3.95 per month, which is less than buying the two separately. Both will cover
you for a maximum of 12 months, so you really need to consider what would happen if a serious accident or
illness left you permanently unable to work.


The insurance industry estimates that 1/5 of men and 1/6 of women have to permanently leave work before
retirement age because of a serious illness or accident. Think about it, if you have a heart attack at the age of
45 then you are unlikely to go back to work again. With a family to support, this could be disastrous.


In this case, then you would need Critical illness insurance – it covers the outstanding mortgage in full if
you are unable to work again. Look out for “total and permanent disability” cover – it is essential that it is
included in the policy as it specifically covers the possibility of you not working again due to accident.


There are a few options to look out for with Critical Illness Insurance – for example you need “decreasing
cover” if you have a repayment mortgage. This is so the value of the payout decreases in line with the value
of your outstanding mortgage. It is also cheaper than the alternative: “level cover”. You need this if you
have an interest only mortgage because the outstanding mortgage balance will remain the same.


Make sure you know all the facts about the insurance you buy, because there will be times that you can't
make a claim. For example, Critical illness Insurance requires you to survive for a period following an
accident or diagnosis of a critical illness, usually 28 days but sometimes 14 days. If you die before that time,
then no claim can be made on your policy.


To cover the possibility of you dying within 28 days, then you need mortgage life insurance. Many lenders
require you to set up a mortgage life insurance policy as a condition of you taking out the mortgage. You
don't have to buy it through the lender however, in fact it will be a lot cheaper if you don't. Also if you live
alone and do not have to support a family, you don't necessarily need this type of insurance as the lender
will recoup the money for the outstanding mortgage by selling off the property.


Mortgage Life insurance is the most popular kind of mortgage protection, and like critical illness insurance,
you can choose between “decreasing cover” and “level cover” depending on whether you have a repayment
or an interest only mortgage.


There's no denying that buying all these insurance policies to protect your mortgage will cost, but there are a
few ways to get the best value. Firstly, if you combine accident and illness with unemployment cover then
you will save around 20%, compared to buying them separately. Some insurance companies may refer to
this as “unemployment and disability” cover. Critical illness and mortgage life insurance also become
cheaper if you combine the two, and we predict an average saving of 20-25%.


And don't forget the most obvious way to save money – shop around. Your lender will quote you on these
insurances, and may even give you the impression that you have to buy your insurance through them, but
you are free to buy it from any company you please. So it had might as well be the cheapest! Go online for
the best deals, even better – contact a specialist life insurance broker and ask them to find the best deals for
you. They can do all the legwork and, if you're not impressed, then you don't have to buy through them. The
advantage they have on price is due to the hot competition on the Internet, especially for insurance. Brokers
offer better deals by slashing their commission and giving you a further discount. Search using any of the
following terms: “cheap life insurance”, “life insurance”, “life insurance quotes” or “Mortgage Protection
Insurance”, and you will come across a number of cost-effective options.


The other advantage to using a broker is that you have full access to their expert advice. When faced with
the option of getting a “Guaranteed Premium” or a “Reviewable Premium” for your critical illness
insurance, will you know what it means? Even if you do, which one is best? That's when a life insurance
adviser is worth their weight in gold. So we recommend picking up the phone and talking to an expert in
person, it doesn't take long and it guarantees you getting it right first time.


The bottom line: peace of mind comes at a price – but it doesn't have to be expensive!
life insurance plans

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:3/15/2012
language:
pages:4