Mortgage Insurance: Are there alternative options?
Mortgage Cover: are there any alternative
Mortgage Payment Protection Insurance is something you may have considered if you’ve ever been on the property market and is something some mortgage providers will insist on as a condition of your mortgage.
Some people ask us, is it necessary to have MPPI? Well, the simple answer is no; it isn’t a legal obligation like car insurance.
There are also people who tell us that they want to ensure their mortgage is protected, but are concerned it isn’t the right insurance for them and want to know, are there any alternatives? And our answer is yes; There are a number of alternatives, which we will look at in this blog; namely life insurance, critical illness insurance and income protection.
These all differ quite significantly, so we’ll look first at mortgage protection and compare the others to it afterwards.
Mortgage Payment Protection Insurance or MPPI ensure that you can continue to pay off your mortgage if you lose your income. It usually comes in one of three flavours ‘unemployment only’, ‘accident and sickness only’ or ‘accident, sickness and unemployment’ each of which covers what it says on the tin. There are options to increase your cover so that you can also afford to pay other costs such as council tax and utilities but otherwise MPPI can only be spent on paying your mortgage and will usually provide regular payouts for up to 2 years.
On that note, let’s move onto the alternatives.
Life insurance is often seen as an alternative, as the payout would probably cover the cost of your mortgage for at least a year or two if not in it’s entirety. Mortgage Lenders have also been known to insist that borrowers hold life insurance, but while it would pay off most mortgages it isn’t really a viable alternative for most circumstances as it only pays out in the event of the policyholder’s death. You have no cover if you are too sick to work or if you lose your job or your income is severely reduced for any other reason.
Critical Illness is another possible alternative, but much like life insurance it won’t provide any sort of regular income and pays out in one lump sum and only under specific circumstances; so while it isn’t an awful option it’s hardly an ideal solution either, though of course, everybody’s circumstances and needs are different and it could be the right option for your needs.
The next alternative can cover the widest range of possibilities and that is Income Protection. It pays out a regular income like MPPI and comes with the same options for ‘unemployment only’, ‘accident and sickness only’ or ‘accident, sickness and unemployment’, but crucially it can be used to pay for costs other than your mortgage and can pay out for a longer period than mortgage insurance.
You can also get a clear idea of what you will and won’t be covered for with income protection as your medical condition will be assessed when you take out a policy.
As mentioned earlier on in this blog, which insurance cover is best for you is dependent on your needs and circumstances, so if you aren’t using a broker to do all the leg work for you, you should thoroughly evaluate your situation and the associated risks before making any decisions.
A lot of people are still very suspicious of any insurance that contains the words “payment protection” due to the PPI misselling scandal some time ago, but you can rest assured that none of the products above, nor PPI for that matter, is a scam in of themselves. You should, of course, think about whether you need any type of insurance before you make a commitment to pay for it and double check with an independent third party that you trust if you have any concerns that someone is trying to mis-sell you insurance or any other financial service that you don’t need.
If you would like a free consultation with one of our protection experts to discuss which option is best for you, you can contact us via phone, email or even via Facebook Messenger!
Phone: 01495 366200
*The contents of this blog are opinion only; every individual’s circumstances are different and we do not make any recommendations without thorough evaluation of our client’s circumstances and needs.*