Protecting Your Mortgage Against Accident Sickness & Unemployment
How long would your savings last?
Trying to work out how long your savings would last for if you were unable to work as a result of being made redundant or suffering an accident or sickness can be a pretty frightening exercise.
In the current era of sky-high house prices many people would find that any spare cash was swallowed up by the mortgage payments alone within only a few months. After all, anyone with limitless reserves is most unlikely to need a mortgage in the first place.
Those who assume that the so-called "State safety net" will bail them out in their hour of need may find that they are in for an unpleasant surprise.
State assistance...
Come the crunch, most homeowners would not be eligible for any State assistance with their mortgage by virtue of the fact that they have savings totalling over £8,000 or a full-time working partner.
Even the minority who do qualify for State support will receive no help with capital repayments and will only get help with interest payments on mortgages of up to £100,000. Furthermore, this will not be available for the first nine months for those who started their mortgages after October 1995.
Protection against losing your income...
But it is possible to take out private insurance against the consequences of losing your income. This is done by taking out Mortgage payment protection insurance which provides a regular monthly income if you are unable to work as a result of illness, injury or unemployment.
Mortgage Payment Protection Insurance pays out for the full term of the mortgage or when you are able to return to work, whichever happens sooner. Typical examples under which you would make a claim would be if you're unable to work because you had a car crash, became disabled, suffered from an illness that wasn't life threatening but still meant you couldn't work (non critical illness).
Or you could have just been made redundant due to downsizing, company take over etc. The length of cover if you're out of work due to an accident/injury or sickness lasts for the full term of the mortgage from the time you make a claim onwards.
So once you make a claim you will receive a monthly payment for as long as you're out of work even if this lasts for 20 years.
Unemployment cover...
With unemployment cover however you are only covered for 12 months, so once you make a claim then you will receive a monthly payment for a maximum of twelve months even if you haven't found a job by then. This is standard policy across all the insurance providers.
Options ...
The amount of cover you need or also called the "monthly benefit" is set at an agreed amount that will be enough to cover the monthly mortgage payments and associated property costs e.g. monthly insurance premiums.
Always set this figure to include all of your monthly property costs not just insurances but also any service charges you might pay and any home and contents insurance you took out.
You will need to also decide how long after you make a claim you wish to receive your first payment also called the "deferred period". You could set this to be as short as one month after you make a claim or as long as one year after you make a claim.
You can vary the level of cover so that you only take out cover for accident and sickness but not for unemployment because you may be in a very highly demanded profession such as medical doctor or nurse and don't see the need to have cover against redundancy.
To discuss the options and get some friendly advice click here.