In the mortgage protection market there have generally been two main types of policy that can be used for mortgage protection purposes, income protection and payment protection. Now there is a brand new product from Liverpool Victoria that combines the best aspects of both to provide the most comprehensive form of not only mortgage protection but also lifestyle protection.
An income protection policy is seen as a far more robust form of earnings protection against sickness or injury and plans have the potential to payout all the way up until retirement, compared to a maximum of only 24 months for payment protection. The only main disadvantage of income protection over payment protection is that unemployment is not covered, which is a major set back given the demand for unemployment/redundancy cover in the current economic environment.
The new Mortgage & Lifestyle Protection product from LV takes mortgage protection to the next level by combining the best aspects of income protection and mortgage protection. In essence this product is an income protection plan with bolt-on unemployment cover, thus providing the best form of financial protection. The main advantages of this product over traditional mortgage payment protection are as follows:
- Can cover all monthly living expenses, including mortgage and rent payments;
- Policies can last until retirement rather than for just 12 or 24 months;
- Much larger sums can be insured, rather than a maximum of £2,500 with MPPI;
- Comes with guaranteed premiums so there will be no premium hikes;
- Far fewer exclusions for accident and sickness cover;
- Can cover up to 36 months of unemployment, spread over the life of the plan;
- Confidence in holding a policy from one of the UK’s leading insurers.
Essentially this LV product allows the policyholder to cover more for longer and with fewer restrictions. Another key benefit of the product relates to it having guaranteed premiums. Payment protection plans usually come with monthly or yearly reviewable premiums which means that the insurer can raise rates as and when they wish. Due to increased claims as a result of the recession many insurers have come under fire for raising rates significantly recently.
This highlight’s advantage of the LV product which can guarantee the same rates for the entire duration of the plan, possibly all the way until retirement or the end of your loan. In other words the monthly premium paid after 12 months will be the same as the premium paid after 12 years. To our knowledge this is the only product in the market that can guarantee rates for unemployment cover.
There is no doubt that this product is the future of mortgage protection. The financial product ratings agency, Defaqto, have awarded it a 5 star rating, puting it at the top of the pile when it comes to earnings protection. The only downside of this policy type is that it can command higher premiums given its increased level of protection, but the relative value of the product still looks very attractive given the recent rises in MPPI rates.
To acquire a well-rounded set of mortgage protection insurance policies it is also advisable to take out a mortgage life insurance plan, especially if the home loan is taken out in joint names. Currently the Mortgage & Lifestyle product does not cover death so a separate life insurance policy would be needed.