Do I Need Payment Protection for My Mortgage?
Although it is not compulsory to take out protection when you get a mortgage there are many reasons why you might nonetheless need Mortgage Protection Insurance.
A mortgage is a huge financial commitment that takes decades to repay, so it makes sense to protect it in case you can’t work at some point during the mortgage term.
If you had to default on your mortgage through accident, sickness or unemployment, you’d lose everything you’ve worked so hard to build.
Do I Need Mortgage Payment Protection or Income Protection?
This is where it gets a little confusing. Although Mortgage Payment Protection may seem similar to traditional Income Protection the level of cover, underwriting and structure of the policy is very different.
While Mortgage PPI can be a very valuable product to protect your mortgage, there are some areas where this particular insurance product can fall short.
Where MPPI lacks, however, Income Protection Insurance excels and for some people it may be the case that you should consider Income Protection instead of MPPI.
The main benefit of choosing Income Protection over MPPI is that the benefits are tied to your income instead of your mortgage repayments.
You can insure up to 65% of your monthly earnings with Income Protection, which means that your benefits can cover more than your mortgage payments.
The best Income Protection Insurance is long-term, which means it will pay out for as long as you need it to, offering a monthly income right up until retirement if necessary.
Getting ‘Own Occupation’ Cover…
Another downside of Mortgage Protection Insurance is that it tends to use a ‘suited occupation’ definition of incapacity. This means if you are too ill to do your current job, the insurer is entitled to assess whether you can do any other job you’re ‘suited’ to before you can make a claim.
The best Income Protection, on the other hand, uses an ‘own occupation’ definition of incapacity, which means you’re entitled to a payout if you can’t do your own specific job through illness or injury.