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Mortgage Protection is a Valuable Asset

Jun 28, 2008
Mortgage protection is a very valuable asset as it can make the different between you losing your home and ensuring that you keep the roof over your head. If you cannot maintain your mortgage by keeping up with the repayments then you are risking the lender seeking repossession. While you are working you can probably keep your head above water, however lose your income and problems can begin.

All homeowners are usually given some leeway by the lender when having problems in the short term. They will want to know why you missed the payment and what you are going to do to catch up. If you have lost your income by becoming unemployed or suffering illness or accident that keeps you from working, then you will not be able to make an agreement with the lender. If you are ill or do have an accident it could be many months before you are fit enough to return to work. If you lose your job it could also take time to find suitable work that pays the equivalent to what you were earning each month. Mortgage protection would provide you with an income after being unemployed or unable to work for a period of time.

A policy is taken out to cover up to so much of your mortgage repayment each month. This is the sum you would need to be able to continue meeting your mortgage repayments, however all lenders will only allow you to insure up a certain amount of your mortgage payment. Lenders will ask you wait for between 30 and 90 days before they would payout on the policy and some will offer to backdate to the first day of you becoming unemployed or of being too ill to work. Once the policy has begun to provide you with the tax-free income it would pay for a certain amount of time and then cease. Providers usually offer cover that would last for between 12 and 24 months.

A mortgage protection policy does have to be shopped around for and the premiums compared. You also need to check the terms of the cover as this will tell you when it would pay, whether it was backdated and for how long you would receive your income. It will also mention any exclusions that could apply in the policy and the majority of policies have at least a few exclusions. Exclusions are such things as you have to be in full time work and living in the UK, Channel Isles or Isle of Man. Mortgage payment protection is often offered at the same time as taking out the loan with the lender on the high street. While it might seem like the best option to have your protection added into the borrowing usually this is the most expensive way to take out protection. In some cases the lender will work out how much it would cost to cover the mortgage and then add on the cover. This way you are paying interest not only on the borrowing but also for the cover to protect the mortgage.
About the Author
Simon Burgess is Managing Director of the award-winning British Insurance, a specialist provider of mortgage protection .
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