Question

I am about to buy a new home and want to take out mortgage payment protection but I ideally want to cover much more than my mortgage so all my other costs are covered too.

Most plans seem to allow cover up to 125% of the total monthly mortgage repayment but I want to cover more like 150-200%, is it possible to take out two mortgage protection plans?

Answer 1

Care really needs to be taken when setting up-set an amount of cover above 125 per cent of your monthly mortgage repayment. Although it is possible to insure over the 125 per cent mark it is not usually recommended to do this with two mortgage protection policies.

It needs to be remembered that mortgage payment protection plans are designed specifically to cover your mortgage, with a small amount of extra protection. If you took out two mortgage plans covering 125% of your monthly repayment each it is likely that only one plan would payout at claim stage, even if taken out from two different insurers.

In other words, you can take out as many mortgage insurance plans as you like provided that the total amount of cover does not go above 125 per cent of the monthly mortgage repayment (this figure does vary slightly from insurer to insurer). It is also usually necessary that the total amount of cover taken out does not go above 65 per cent of your gross (pre-tax) personal earnings.

However, it is usually possible to take out one mortgage payment protection plan covering 125 per cent of your mortgage payment AND a general payment protection plan covering the remainder. In other words, some payment protection plans are specifically for 'mortgage protection' and others are for 'income protection', and one plan shouldn't influence the other unless you cover over 65% of your gross income.

Naturally, you could cover the full amount with a general income/payment protection plan and just have one plan rather than two (discarding the mortgage protection policy altogether) but the monthly premiums are usually lower with mortgage specific payment protection plans as the risk profile is lower for the insurer, hence making it cheaper to take out two plans.

This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 020 8432 7333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.