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Most Popular Types of Mortgage Insurance
Mortgage insurance is a policy designed to meet mortgage payments in all events when the insured is unable to do so. It covers all events including death, illness and unemployment of the insured. In any event that leads to inability to pay, the insurance company will make the required payments on behalf of the insured.
There are various types of mortgage policies available and can be chosen after a thorough comparison. The most popular types of mortgage insurance include:
- Mortgage Payment Protection Insurance – This policy covers monthly repayments of mortgage due to inability to work. This may be due to illness or accident of the insured.
- Household Insurance - Different from ‘contents’ insurance, this policy covers the lender’s investment in case of destruction of mortgaged property due to reasons like fire.
- Term life cover A particular type of life insurance that is designed to meet mortgage payments in case of the death of the insured. The term period is usually the same as that of the mortgage repayment tenure. Term life covers are of two types:
- Decreasing term life cover- Under this policy, the issuer pays out the balance due on the mortgage debt of the insured. The dependents are not bothered with repayment and hold the title of the property.
- Level term cover – Under this policy, a pre-decided lump sum is paid out by the issuer of the policy, in case the insured person dies within a fixed time period. The lump sum can be used towards repayment of mortgage debts.
Alternatives to Mortgage Insurance
Alternatives to mortgage insurance includes income protection insurance, critical illness cover, life insurance policies and employee benefits like statutory sick pay, which help towards repayment of the mortgage. Availing government help in case of inability to meet mortgage repayments is also an option but should be availed of only as the last option.
Main Benefits of Mortgage Insurance
Mortgage insurance ensures the investment of the lender is protected and that title of the property remains with the insured or his loved ones. The policies are designed to cover eventualities like unemployment from illness or accidents, death of the insured, loss to property from calamities like fire and so on.
Main Draw-Backs of Mortgage Insurance
Pre-existing medical conditions, stress & back related injuries or illnesses, pregnancy & childbirth, self-inflicted injuries and chronic medical conditions leading to unemployment or death are not included in the scope of the policy. The cost of mortgage policies increases with an increase in risk of death of the insured.
10 Popular UK Mortgage Insurance Companies
Mortgage protection plans are designed to cover the repayment of mortgages in the event of loss of income for the insured following illness, unemployment or accident. They may cover only interest or complete repayment as stated in the terms of the policy. The value of cover depends on gross monthly salary subject to a maximum limit set by the insurer.
When selecting a Mortgage Insurance Policy, it is always advisable to compare the various options before arriving at a decision. A look at the 10 popular mortgage insurance companies in the United Kingdom will be a great help in streamlining the selection process. This list of the top 10 companies is a compilation and not necessarily in their order of merit.
- British Insurance Services
- Paymentcare Ltd.
- Lexelle Limited
- Paymentshield
- Firstcallpaymentprotection
- Helpucover
- Realm protection Ltd
- iprotect Insurance
- Shepherds Friendly Society
The terms of most of these mortgage protection insurance plans show only very slight variances within a distinct range. Most plans offer a maximum benefit ranging from £1,500 to £3,000 per month and covers 75 to 50 percent of the gross income of the insured. The only exception is the Mortgage Protection Plan from Shepherds friendly society which has no limitation for the maximum cover. The age of insured cannot be more than 63-64 years of age when taking a new cover under any of these Mortgage protection plans. Selection of a policy would be influenced by the ability of the insured’s premium payment capacity as well as expected returns from the policy.
What is the Need for a Mortgage Protection Insurance?
While not essential, a Mortgage Protection Insurance Plan is primarily designed to meet mortgage repayments in the event of an inability to meet the repayment schedule. The inability may be due to the inability to earn owing to accidents, unemployment or illness. It may also be due to the death of the insured. In all the cases mentioned above, the dependents are left with no other option and have to forego all rights to the mortgaged property.
Main Benefits of Mortgage Protection Insurance
In case of inability to make timely mortgage payments, the entity holding a lien over the property can legally repossess, leaving the insured and/ or his survivors without any legal rights or ownership over the said property. Mortgage protection insurance is designed to meet this eventuality. Here, the company providing the mortgage protection insurance will continue to make payments on behalf of the insured.
Main Draw-Backs of Mortgage Protection Insurance
Under mortgage protection insurance, the full medical check is done only when the claim is submitted. Therefore, the insured is certain if certain pre-existing conditions are covered or not. Similarly, voluntary unemployment including, voluntary redundancy are not covered under this policy. Self-inflicted injuries, pregnancy and childbirth leading to unemployment are also beyond the scope of this policy.
4 Alternatives to Mortgage Insurance
All investment made in a property or house after securing a loan needs to be protected or secured for the legal heirs of the owners, in the event of his death before repayment of entire loan amount. Usually the mortgage loan is covered by mortgage insurance from the loan finances although a third party also works out fine.
4 Alternatives
A mortgage insurance cover is usually availed to make provisions for repayment of mortgages in the event of the death of the borrower. However, there are four alternatives to mortgage insurance viz., Income Protection, Critical Illness Cover, Life Insurance and Governmental Help.
The income protection (IP) policy pays 50 percent of the last earned salary if the insured is unable to work due to illness or accident. The insured continues to receive the amount till he rejoins work or reaches retirement. Returns from the IP policy are usually paid for a longer time period than mortgage insurance.
Critical Illness Insurance (CII) pays a tax-free lump sum if the insured is diagnosed with any of the illnesses or conditions covered by the policy. The lump sum so received can be used towards repayment of the mortgage.
Life Insurance policies make provisions for the legal heirs, particularly dependents in the event of the death of the primary earning member. A lump sum or a monthly income (decided at the time of purchase of the policy) is generated by the death of the insured.
Government Help is possible only if the applicant is eligible for state benefits like Employment & Support Allowance or Jobseeker’s Allowance. Apply for SMI (Support for Mortgage Interest) scheme to have a part of the mortgage covered immediately.
Reasons for Availing a Mortgage Loan
A mortgage loan is usually availed when purchasing a property at a value higher than available cash reserves. The loan is availed on the assumption that the monthly installments towards the repayment will be met by the person or persons availing the loan. However, in the event of non-payment and subsequent repossession a mortgage loan helps protect the property for legal heirs.
What are the benefits of making provisions for repayment of Mortgage Loans
Policies like mortgage insurance or any other alternative arrangements like the critical illness cover, income protection cover or life insurance come into effect on the borrower’s inability to work due to illness, accident or death. Each policy adopts different guidelines to meet the borrower’s financial requirements in full or part.
What are the drawbacks of not making provisions for repayment of Mortgage Loans?
Unless such options to cover the mortgage repayment are in place, the legal heirs not only have to deal with personal loss, but need to worry about meeting repayment schedules as before. Inability to meet the payments would result in loss of property along with all investments made on the property.
Why You Should Consult a Broker to Buy Mortgage Insurance?
Brokers play an important role in the arrangement of transactions between the buyers and sellers. However, they do it for a particular commission. They also play an indispensable role in the purchasing of mortgage insurance. Thus, it is important to know why you should consult a broker to buy mortgage insurance.
By definition mortgage insurance is a policy of insurance which ensure that the investor is compensated for his loss in case there occurs a hazard because of a mortgage loan or default. There are different types of this program and there is no way but to consult a broker to guide you better in this regard. The reason is that a registered and professional broker can give you a better insight of the mortgage insurance. In this regard, he would be in a much better state to tell you about:
- Interest rate, how to lock it and for how long
- The Annual Percentage Rate
- Costs associated other than this program
- Grace period
- The deadline when the payments will be due
- Length of the loan
- Balloon payment at the end of the loan
- Chances of the loan getting sold
- Appraised value of the property
- Details about the credit report
In a nutshell, the broker is necessary to be consulted because he helps you in getting a better picture of the situation and saves you from the misery of staying confused with all the legalities and associated procedures in this regard. So, conclusively, a broker can aid a lot in providing you with the proper information but yes, at a monetary cost.
One of the common alternatives to the option of consulting a broker is that you can go for the research yourself. It involves researching and digging out the minute details of the topic yourself. Of course, it is time-consuming but it saves you the money that is otherwise spent on the broker.
Main Benefits of Mortgage Insurance
The major benefit of consulting the broker is that you can acquainted with all the minute details, legalities and associated facts and figures really quickly without having to waste a lot of time on the research yourself. Moreover, his information is also seasoned by experience in the field which is sometimes more important than the information itself.
Main Drawbacks
The drawback of consulting the broker is that all of his advice and suggestions come with a fee and you might not be willing to do so in some cases. Moreover, there is a high chance of fraud in the scenario that the broker turns out to be unregistered. However, the latter drawback can be eradicated by confirming the authenticity of the broker prior to making the deal.
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