Mortgage Protection FAQ

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What is Mortgage insurance?
For this definition, the problem of death or critical illness is used, rather than making the month-to-month payments whilst being ill or incapacitated, but not critically ill. It provides a lump-sum of money to repay the mortgage debt, usually in the event of death or suffering one of an insurers specified critical illnesses (see related section).

For information, the month-to-month mortgage payment insurance is commonly known as either MPPI (Mortgage Payment Protection Insurance) or ASU (Accident, Sickness or Unemployment) cover.

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Repayment mortgage cover...
This type of mortgage debt is decreasing in nature (see relevant section), thus tends to have a mortgage protection policy attached that follows the mortgage balance downwards, with the goal of providing enough cover to repay the mortgage debt at all times.

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Interest-only mortgage cover...
This tends to be related to those individuals who may have a 'Buy-to-let' investment mortgage or those who have a residential mortgage with a repayment vehicle in place to repay the capital i.e. an ISA, but no life or critical illness cover arranged. In past times, an Endowment (a mixture of protection and investment) would have been naturally arranged alongside an Interest-only mortgage. Unlike the repayment cover above, the life and critical illness cover would remain level, not decrease, as a person paying an Interest-only mortgage does just that, no capital being repaid within their monthly mortgage payment.

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What covers can be included within a mortgage protection policy?

• Waiver of premium – protect the policy by paying the premiums if the insured is long-term sick, usually longer than 6 months.
• Terminal Illness cover – if the insured person has 12-18 months or less to live, this allows the policy to pay out before death.
• Buy-back option – the facility to re-instate/continue the life insurance portion of a policy after making a critical illness claim.

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Can I cover for more than my mortgage amount?
You can, as the policy is only notionally linked to the mortgage i.e. a £150,000 insurance would pay out and provide enough to repay a £100,000 mortgage with £50,000 left over to spend and allocate as you wish. It would be to seek the advice and opinion of a Financial Adviser in this circumstance, as they will be qualified to ensure this would not create a problem. They may recommend a specific mortgage-related policy and a separate policy if more cover is desired.

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Does the insurer pay off the mortgage provider for me?
No. The Insurer will not usually check you have used the monies to repay the mortgage, it being only notionally linked to the mortgage. It is your responsibility to liaise with your mortgage provider to repay some or all of the balance and ascertain if any penalties may apply for a large repayment at that time.

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Can I increase the cover if I move house and arrange a larger mortgage?
Some insurers offer the facility of 'Guaranteed Insurability'. This is where; subject to certain parameters, a policy can be increased at the then applicable premium rates, but without further medical questions, evidence or investigations. Some providers also factor in a 'Moving home' option specifically for these types of policies, allow certain increases as they appreciate they are linked to a mortgage and people do move home and increase their mortgages occasionally! If not, most providers will allow a separate top-up cover to be effected, although it may be best to review your circumstances fully in this event.

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What does mortgage insurance cost per month?
It depends on a number of factors, such as Gender, Age, whether or not you smoke, height & weight, occupation, personal medical history/conditions, and even family medical history. Naturally, the greater the cover and term, the larger the premium is likely to be!

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Who provides mortgage insurance and how can I purchase it?
Most insurers provide this type of cover, thus it is a highly-populated and competitive market. Thus, making contact with an Adviser and/or searching online to obtain a quote may help. Lse.co.uk has linked to a Whole-of-market Adviser for the benefit of its members and visitors - click here to get a quote!.