As the economic downturn continues to bite, UK families are turning to alternative ways of protecting their income and their homes. Mortgage Protection Insurance is one of those ways that has seen phenomenal growth in the last few months. But, with the increasing number of providers and different types of policies available, buying the right insurance can be extremely time consuming.
Here are our top ten tips for buying Mortgage Protection Insurance:-
1. Why take out this cover?
State benefits are pitiful compared to the real cost of living for the average family or young couple living in the UK today. Just because you are unable to work it does not mean your financial commitments are put on hold. Typically mortgage, personal loan and credit card repayments will rapidly turn into red demands and place your credit worthiness at risk. This is one of the greatest concerns in the post credit crunch era. Trying to secure a re-mortgage deal with an impaired credit history is becoming a major challenge.
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2. When to apply for Mortgage Protection Insurance
If you are in full time employment and there are no issues with redundancy at the moment, then this is the ideal time to buy this cover. You will then have the security of knowing you can call upon this insurance if things change for the worse. If your employer has made an announcement regarding major layoffs, you are probably too late to buy unemployment cover.
If you already have this insurance, perhaps just covering your mortgage payments or a single loan, you should check what you are paying at present. Consider switching to an on-line provider as you are almost guaranteed to make a significant saving AND improve the total benefits payable.
3. Know what is available to you and what you should buy to meet your needs.
Mortgage Payment Protection Insurance (MPPI) is designed to cover the amount you pay for your mortgage each month. You can usually top up the amount by up to 25% more to contribute toward other household expenses. Premiums are very competitive and this probably represents just about the minimum level of protection for a couple/family if one wage earner is unable to work. It will meet most short term commitments, however the average family will almost certainly need to have some savings they can dip into after a few months.
Income Protection Insurance (often called Lifestyle Protection) is very similar to MPPI, however the approach is essentially different. The cover you are offered will replace the bulk of your after tax income if you are unable to work. When calculating the benefit you need just add up all of your significant outgoings. You are not limited to your mortgage repayments.
4. How to calculate how much cover you need
Here is an example of Mortgage Payment Protection, it is a very simple calculation:
Average monthly cost of mortgage repayments: £700 plus (up to max) 25% for additional expenses : £175 = £75 benefit required.
If this is not enough to meet your needs, consider an Income Protection Policy.
5. What do you want to be covered for?
Mortgage Payment Protection and Lifestyle / Income Protection are very similar. Almost all of the providers will offer policies that cover you for Accident and Sickness or Accident Sickness and Unemployment. Most people will only be interested in Unemployment cover in the mistaken belief that Accident and Sickness will not be an issue for them. It may come as some surprise that in 2008 i:protectinsurance for example paid more claims for people off work due to Accident and Sickness than for Unemployment. It should be remembered that a person who is fit and well can start looking for work immediately. Someone who is ill may have nowhere else to turn when their company sick pay scheme runs out and they cannot earn again until they are well.
6. How long could you afford to wait before you need to claim under your policy?
The longer the excess period, (that is the time you wait before the policy benefits are paid), the cheaper the policy will be. Some insurers refer to this as the deferment period. The flexibility of the products will be very important to you, you will want the ability to choose when you need your policy to pay out.
This will depend upon your current contract of employment and any company benefits you enjoy, particularly the generosity of the sick pay scheme that may allow up to 6 months off work at full or half pay.
7. Best Prices
The best rates are available on line where Protection Insurance can be bought without supporting the cost of providing a telephone sales, broking or advice service to customers. Not paying for the services of an intermediary or commission to a High Street Bank will produce the biggest savings. Anyone who already holds a monthly paid Payment Protection Insurance, perhaps linked to a personal loan, will almost certainly find they can make a significant saving by cancelling this and buying the same level of protection on-line.
However a word of caution, in the current economic climate, NEVER cancel an existing Mortgage or Income Protection policy until you are accepted in writing for a replacement or alternative policy. This is because policy underwriters have significantly changed their acceptance criteria as the UK economy has moved into recession.
8. What happens if your application is not accepted?
Applying for Mortgage Protection Insurance on-line is a great way to save money. However, given the current economic climate more people are being turned down for this type of insurance. Also some providers such as i:protectinsurance endeavour to do all that is humanly possible to ensure anyone who takes out a policy with them, will be able to claim on it. So they will ask more questions and perhaps turn away some potential customers that a less scrupulous company may take on but reject subsequently.
9. What happens if your circumstances change
You might get another job, it may offer better benefits for sick pay but, as a new starter, you will not qualify for redundancy terms. In this situation you will want to tailor your policy to your needs. For example, by having an increased excess for your accident and sickness benefits and back-to-day-one cover for your unemployment benefits. Also, it is ESSENTIAL to tell your Protection Insurance provider if you change your job so they understand your situation. There is every possibility you could save some premium if better employment terms enable you to increase the excess period on your policy
10. Which provider should you choose?
Moneysupermarket are a good source of comparison quotes however always read the cover offered very carefully. Some policies look very cheap, but are often restricted. Look for providers registered with the FSA, this means they are regulated, closely monitored and the underwriters must meet strict rules concerning their solvency to be allowed to trade in the United Kingdom. Money Saving Expert provides a good source for researching Mortgage Payment Protection Insurance.
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