Receive an upfront cash lump sum for your loved ones to pay off the mortgage in full should you pass away during the term of your mortgage
Receive an income to cover your monthly mortgage repayments should you be unable to work due to accident, sickness or unemployment
There are two types of Joint Mortgage Insurance which although both protect you from defaulting on your repayments cover very different risks:
Combining the two types of Mortgage Insurance provides protection which can offer you the peace of mind that comes from knowing your mortgage debt will not be a concern should something happen to you or your partner.
You and your partner will be covered against the risk of having to take time off work due to illness or injury, thus ensuring you can keep up with your monthly repayments.
The vast majority of Joint MPPI plans also have the option to cover yourself against the risk of forced redundancy, so should either of you lose your job through no fault of your own the policy would pay out to cover the mortgage repayment while you are out of work.
Joint Life Insurance will cover the full outstanding balance of your mortgage if you or your partner are diagnosed with a terminal illness or pass away.
You can add Critical Illness Cover that will pay out in the same way should you suffer a serious illness such as things like cancer, heart attack and strokes. The list is pre-defined by the insurer and can cover anywhere from 10 to over 100 critical conditions.
Whether or not you need Mortgage Protection Insurance is going to depend on what it is that you are looking to protect with your policy and what resources are available for you if you or your partner one day face misfortune.
If you’re not sure about any of these questions, you may want to consider Mortgage Protection Cover.
Taking out a mortgage is typically the biggest financial commitment that most of us will make in our lives.
The Money Charity revealed the average outstanding mortgage debt for UK households as of January 2019 was £129,126 with average interest of £3,202 per year.
Samantha Haffenden-Angear
Independent Protection Expert at Drewberry
The considerable cost of a mortgage is the main reason why so many couples take out a joint mortgage and agree to pay a proportion of the monthly repayments each.
However, sharing responsibility for a mortgage can add to the risk of being unable to meet payments, particular if both partners make significant contributions towards the monthly loan repayments.
Joint Mortgage Payment Protection Insurance (MPPI) can cover short-term illness, injury or unemployment.
This type of policy will pay out a monthly benefit to cover the monthly mortgage payments. The maximum amount that you can cover is the full loan payment plus up to an additional 25% that can be put towards associated home costs, such as council tax and utility bills.
In some cases, however, it is possible to cover only the incapacitated partner’s contribution if you would prefer to save money on your policy.
For example, if both partners have equal income then it can be structured so that the insurance policy would pay out 50% of the loan amount each month if a claim needs to be made, which would make the monthly premiums cheaper.
Joint Mortgage Payment Protection policies are designed to provide only short term protection for your mortgage payments. The maximum length of time a claim will pay out is either 12 months or 24 months, whichever you choose at the start of the plan. However, this period will only commence after your policy’s Deferred / Excess Period, which is usually set at a minimum of 30 days.
During this time, you will also be subject to assessments to assess your incapacity. Your insurer will use a predetermined definition of incapacity to decide whether or not your health problem is severe enough to prevent you from working.
If you choose to add Unemployment Cover to your policy, it’s important that you research carefully when you are and are not entitled to your benefits. Unemployment Cover can only be claimed under specific circumstances, in general when you have lost your job through no fault of your own.
Typically, instances of unemployment that are not covered by Joint Mortgage PPI include:
It is also important that you are aware that having an MPPI policy may prevent you from receiving certain government benefits if you are in need of an alternative source of income.
Joint Mortgage Insurance will protect your mortgage payments if you are ill or injured too severely to work.
However, if you are concerned about how you will afford other monthly expenses while you aren’t working, it might be worthwhile considering an Income Protection Insurance policy which can provide a more comprehensive long-term form of financial protection.
Victoria Slade
Independent Protection Expert at Drewberry
While Joint Mortgage Payment Protection protects your monthly mortgage payments, the amount that you get from your monthly payouts can’t cover much else. This means that you will have to find another way to meet your other essential expenses.
If this is something you worry about, Income Protection Insurance is often seen as a more comprehensive alternative to Mortgage Payment Protection.
While you can’t get joint Income Protection for couples – each person would need to have an individual policy – it’s possible to cover more than just your mortgage, including other daily living expenses.
You can typically cover up to 65% of your gross individual pre-incapacity income rather than just covering mortgage repayments, which makes it a favourable option for many people.
Joint Mortgage Protection | Income Protection |
|---|---|
Covers your monthly mortgage payments | Covers up to 65% of your monthly income |
Pays out benefits for a maximum of 12 or 24 months | Long-term policies can pay out benefits until you reach retirement age |
Usually no medical underwriting when applying for cover | Full medical underwriting when applying for cover |
Premiums are usually reviewable and can go up over time. | Guaranteed premiums are often available which remain fixed. |
Joint Mortgage Life Insurance will pay out a lump sum if either of the policyholders dies or is diagnosed with a terminal illness with less than 12 months to live.
Policyholders are able to set the level of cover they want from their policy, which is usually set at the full amount of the remaining mortgage. This will be used to pay off the mortgage in full and reduce potential financial stress for the surviving partner.
Different types of Mortgage Life Cover are designed to match different types of mortgages. When you set-up your policy, you will initially need to decide whether you want Level or Decreasing Term Mortgage Life Insurance.
If you have Level Term cover, it means that the amount that you and your partner are insured for will not change while you have your policy. This type of cover is designed to protect an interest-only mortgage where the outstanding balance doesn’t fall over time.
On the other hand, if you have a capital / principal repayment mortgage, the more appropriate choice would likely be Decreasing Term cover. This type of policy will decrease in value the longer you have it, matching the decreasing amount that you have left to pay on your mortgage.
By matching the term of your policy to the estimated time that you expect to have paid off your mortgage, you can expect your Decreasing Life cover to reach zero at the same time as your mortgage debt.
To cover the risk of serious illness or injury preventing you from meeting your mortgage payments Critical Illness Cover can be added to a Joint Mortgage Life policy.
Mortgage Life Insurance with Critical Illness will pay out a lump sum if one of the policyholders suffers a critical illness specified in the policy as well as if they pass away.
You typically set the amount of Critical Illness Insurance to cover the full amount of your mortgage and, if you’re diagnosed with a critical illness of the specified severity listed in the policy terms, you’ll receive the full payout to clear your mortgage.
The big three claims on Critical Illness policies are for:
Policies can cover anywhere from 10 to 100 conditions but most cover around 40 critical illnesses so it pays to read the terms and conditions carefully.
One important detail about Joint Mortgage Life policies that many people don’t realise is that although two people are covered by the policy, it will only pay out once. With a standard policy, the lump sum would be paid out upon the death of the first partner.
If you are purchasing Joint Mortgage Protection Insurance for the sole purpose of protecting your mortgage, then this detail will not have much of an impact on you. You only need the policy to pay out once to clear the mortgage.
If, on the other hand, you had hoped to leave something behind for your loved ones that will cover more than just the mortgage then you may want to consider alternative options including opting for two individual policies instead of joint cover.
Given that Mortgage Payment Protection and Mortgage Life Insurance are designed to do two very different things, the cost of them is very different.
To come up with the cost of joint Mortgagee Life Insurance, we’ve assumed the following about the couple:
Age | Joint Decreasing Life Insurance |
|---|---|
30 Years Old | £11.58 per month |
40 Years Old | £21.20 per month |
50 Years Old | £55.98 per month |
Where MPPI has to be taken out individually the pricing below is per person. For the purpose of our calculations we’ve assumed:
Age | Accident & Sickness Cover | Accident, Sickness & Unemployment |
|---|---|---|
30 Years Old | £7.38 per month | £29.68 per month |
40 Years Old | £12.13 per month | £39.53 per month |
50 Years Old | £29.87 per month | £60.37 per month |
No, Mortgage Insurance isn’t compulsory to get a mortgage. It’s not a legal requirement, so it’s possible to get mortgage without it.
However, you need to think carefully about whether you’ll need protection if you were unable to work, you were made redundant or you pass away. Without any protection, you or your loved ones could potentially lose your home if the worst were to happen.
Mortgage Life Insurance is designed to run alongside your mortgage for the length of the loan, always being there to repay the outstanding balance should you pass away during the life of the policy / your mortgage.
As the Life Insurance lasts for the same term as the mortgage, once the mortgage is over the Life Insurance also ends. If you want a policy to last longer than the mortgage, perhaps for some family protection until your children are financially independent, you’d likely need a separate policy such as Level Life Insurance or Family Income Benefit.
This depends on your point of view and your circumstances.
Mortgage Life Insurance might be worth it if you want to ensure your partner and / or children could stay in the property if you were to pass away and you are worried your beneficiaries wouldn’t be able to keep up with your mortgage repayments without you.
If, however, you’re single and don’t have any beneficiaries, and are happy with the property being sold to repay the mortgage on your death, it may not be necessary.
Mortgage Payment Protection Insurance might be worth it if you’re concerned what would happen with your mortgage repayments if you became too ill to work or were made unemployed. If you’re covered elsewhere, such as with an Income Protection policy, you may not need additional cover.
If you’re not sure whether or not Mortgage Protection Insurance would benefit you, you can always ask one of the experts at Drewberry for help.
Mortgage Payment Protection Insurance is a form of Payment Protection Insurance (PPI) that is tied to a loan secured on a property rather than being used to cover unsecured debts such as credit cards or bank loans.
With Mortgage Payment Protection, the policy typically pays out to you and you use the funds to maintain the monthly mortgage repayments. With PPI, the payments are typically paid straight to the lender.
Your mortgage is likely to be the largest debt you will ever have. It makes sense to ensure you have adequate mortgage protection in place should the worst happen or should you be too ill or injured to meet your mortgage repayments.
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.
Sorting out a mortgage can be stressful enough so if you need help making sure you have the most appropriate insurance in place we are here to help.
Pleas don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.
Robert Harvey
Head of Protection Advice at Drewberry