Mortgage protection: A lifeline or noose?

If you have purchased or are considering purchasing mortgage protection from a high street lender then think again, for unless you are really careful you could be placing a noose around your neck. Much has been made of how the high street banks and lenders have, in the past, ripped off their unsuspecting customers by selling over priced, often unsuitable cover. However, if you shop around for the cover and take the option of going with a standalone protection specialist then you would probably buy the lifeline a mortgage protection policy should be.

Ideally mortgage protection is taken out to provide those who have to keep up with their mortgage repayments with a monthly income if they should become unable to work after having an accident, an illness or being made redundant. Policies continue to pay out for up to 12 months and in some cases 24 months, which can indeed be a lifeline in protecting the roof over your head and stopping repossession due to not being able to afford your mortgage repayments.

However, as with all insurance, there are exclusions in a mortgage protection policy and this means the product isn’t suitable for everyone. There is a thin line when it comes to determining if mortgage protection is a lifeline or noose and it all basically boils down to the fact of whether you understand a policy or not. The majority of people don’t understand a policy - how could they be expected to when they are filled with what only can be described as technical jargon. Luckily there are lenders in the sector that realise this and campaign for the cover to be explained clearer while doing their bit and giving you the information you need to ensure you don’t hang yourself with an unsuitable policy.

Many high street lenders at the other end of the scale would gladly help you place the noose there and pull it tighter by selling you a policy that is filled with exclusions which of course they haven’t explained to you at the time of selling the policy. They will also charge you an extortionate premium for a policy which could essentially be worthless to you. This has been the number one reason for the fines handed out by the Financial Services Authority (FSA) during their investigation spanning two years and which is still underway while the sector has also been referred to the Competition Commission (CC) by the office of Fair Trading.

In early 2007, several well known financial companies were fined by the Financial Services Authority due to not ensuring mortgage protection was right for consumers. However, with the FSA and the CC looking at the payment protection sector as a whole, positive changes will be made in the industry and cover will be made more transparent for the consumer. Mortgage protection is supposed to be a lifeline, this is what it was designed for and is what it should do and by the time the CC and the FSA have completed their respective review and investigation hopefully mis-selling will be a thing of the past and mortgage protection will have a better future, as will the consumer.

Mortgage protection insurance cover could save your home

If you are in full time work and have the commitment of paying a monthly mortgage then you will no doubt have at sometime or another had the odd day off work. And while the odd day doesn’t make such a huge difference to your income having a month or more off could have a serious financial impact and could seriously affect your ability to meet your monthly mortgage repayments. If you were to be out of work for a few months then this could mean that you stand the risk of having your home repossessed if you cannot keep up with the mortgage repayments, however mortgage protection insurance cover could save your home.

Mortgage protection insurance cover is one member of a family of payment protection insurance (PPI) policies that can, when purchased correctly, ensure that you would have a monthly income to cover your mortgage repayments and associated costs if you should become out of work due to having an accident, suffering an illness or becoming unemployed through such as redundancy.

The cover is sometimes called ASU which is stands for accident, sickness and unemployment, and a policy can be taken out to safeguard against accident and sickness only; unemployment only; or accident, sickness and unemployment together.

Quotes for the mortgage protection insurance cover are given on the amount that you wish to protect each month and if you shop around for the cover and get your quote from a standalone provider then you can be sure of obtaining the cheapest quotes for the premiums. If you take the mortgage protection insurance cover that is offered alongside the mortgage from the high street lender, then the premiums could be sky high over the term of your mortgage. Also, historically, high street banks and lenders often fail to provide pertinent information regarding the key facts and exclusions within a policy. In a nutshell, this could mean that you buy a product that doesn’t even cover you.

Some of the most common exclusions within mortgage protection insurance cover are if you are self-employed, if you are retired or only work part time. If you should become unable to work due to a pre-existing medical condition then this too would be excluded and you wouldn’t be able to claim for it. There are also many exclusions among common problems that keep people out of work such as back problems and stress related illness, so it is worth checking out the exclusions to ensure that a policy would suit your requirements.

Mortgage protection insurance cover could help you save your home as if you were to be out of work, typically for 30 days or more, a good policy would kick in and be backdated to day one. It would then continue to provide you with a tax free income for up to 12 months - in some cases for up to 24 months with some providers. It isn’t, however, suitable for everyone and only you or a specialist provider can determine if it is. The majority of standalone providers will offer all the information that you need to ensure you are able to make the right choice before committing yourself to a policy. However, be aware that the high street lenders often do not and you must ask about them about the key facts and any exclusions outright.

British Mortgage Protection Insurance

British Insurance offer mortgage protection that would protect the roof over your head after just 30 days of unemployment or incapacity. You would then e able to relax knowing that you had 12 months in which to recover or find work. When you shop around for your policy you can find that some providers will offer a policy that could pay for 24 months. Some might also have you waiting for as many as 90 days before you can put in a claim.