Joint Mortage Protection Insurance
Protecting your mortgage...
There are two forms of joint mortgage protection, one designed to protect your monthly mortgage repayments against the risk of illness, injury or unemployment and the other to pay off your mortgage should the worst happen.
Mortgage Payment Protection
Guarantees your monthly mortgage payments if you or your partner are unable to work due to accident, sickness or unemployment.
Mortgage Life Insurance
Provides a cash lump in the event of you or your partner passing away. With cover available designed specifically for both interest only and repayment mortgages.
What does Mortgage Payment
Accident & Sickness
With mortgage payment insurance you can cover the risk of having to take time off work due to illness or injury, thus ensuring you can keep up with your repayments.
The vast majority of MPPI plans also have the option to cover yourself against the risk of forced redundancy. Some plans can just cover unemployment only.
Important! As most MPPI plans can only payout for 12 months it makes sense to consider adding critical illness cover to your mortgage life insurance or taking out a long-term policy to cover the risk of serious illness or injury.
How does Mortgage Protection work?
Protecting your family...
You cease working due to Accident, Sickness or Unemployment.
Stage 2:You make a claim with the insurer (including your GP note / redundancy letter).
Stage 3:The insurer starts paying out a monthly benefit after your initial deferred period.
Stage 4:The insurance plan pays out until you return to work or reach the maximum payout length of your policy.
It is common today for home loans to be taken out jointly between two partners and as a result there is a large demand for joint policies to cover that potential liability. It is usually the case that both partners make significant contributions towards the monthly loan repayments. If the income from one partner were to cease it will usually create a large financial burden.
If one partner does not have the income to pay their share the remainder of the monthly mortgage loan payments will have to be paid solely by the other partner or supplemented out of savings. Naturally, in many cases the loss of one partners income leads to the development of mortgage arrears and possibly home repossession.
Fortunately the insurance market in the UK is well developed and able to take this financial risk off your hands. There are four main causes for loss of earnings that can be protected, listed below.
Short-term illness or injury:
You suffer an illness or injury that prevents you from working and therefore earning for between one month and 24 months;
You get made redundant from your place of work and are unable to find another job for between one month and 24 months;
Long-term illness or injury:
You suffer a serious illness or injury and are unable to work and therefore to earn a living for an extended period of time, possibly never being able to work again;
Death or terminal illness:
You pass away or suffer a terminal illness and therefore leave your partner of pay off the joint mortgage loan on their own.
Mortgage payment protection insurance (MPPI) can cover both short-term illness or injury and unemployment. This type of policy will pay out a monthly benefit to cover the full amount of monthly loan payments and an extra 25% for associated home costs, such as council tax and utility bills (if desired).
Insuring your monthly mortgage repayments
The maximum that can be insured is the lesser of £2,500 per month or 65% of gross monthly earnings. The maximum period for which the policy will pay out is either 12 months or 24 months, whichever you choose at the start of the plan.
Thus, if either you or your partner were to suffer incapacity or unemployment (redundancy) the joint mortgage payment protection policy would pay for the total monthly home loan amount due. However, it is possible to structure the joint MPPI plan so that it pays out a proportion of the monthly loan repayment that is equivalent to that particular partners proportion of total partner income (please contact us for this structure of cover).
For example, if both partners have equal income then it can be structured so that the insurance policy would pay out 50% of the loan amount each month if a claim needs to be made, which would make the monthly premiums charged cheaper.
Another form of joint mortgage protection is mortgage life insurance cover. This type of policy can provide home loan and therefore partner protection from the death of one partner (terminal illness is also covered as standard). The policy would pay out a tax-free lump sum directly to the remaining partner.
Provided that the sum insured is set equal to the amount of loan outstanding at the start of the policy, the payout from the life cover would enable the surviving partner to pay off the home loan in full. After the policy has paid out it would terminate (the policy pays out upon first death).
Level or decreasing cover?
If you have a capital (principal) repayment loan then decreasing term mortgage life insurance would be most appropriate as the level of cover declines along with the amount outstanding on the loan. For an interest only loan level mortgage term life insurance would be most appropriate as the amount of cover remains fixed over the course of the mortgage loan term.
Including critical Illness cover
To cover long-term illness or injury critical illness cover can be added to the life policy. This type of cover will pay out a tax-free lump sum if one of the policyholders suffer a critical illness specified in the policy. Leading critical illness policies cover over 30 conditions, including cancer, heart attack and stroke.
With a joint mortgage life insurance with critical illness policy the cover will terminate upon first event of either critical illness or death / terminal illness for either partner (in other words the policy will only payout once). Thus, with this joint policy combination the loan can be repaid in full if either partner suffers a critical illness or death / terminal illness.
One of the issues with joint mortgage protection life insurance is that the policy ends upon first death leaving the living partner uninsured at an older age. Although the home loan will have been repaid, if additional cover is required for family protection reasons it will be far more expensive to gain this cover at an older age (as age is one of the largest life insurance quote factors).
The tip is to compare the combined monthly premiums of two separate policies relative to the joint plan. It is often the case that you can gain double the cover (with two separate policies) for about 10% more each month. Thus, for a small proportion extra per month you could gain both mortgage insurance cover and family protection cover.
If you require any mortgage protection advice on your policy choices or simply want to compare joint mortgage protection quotes please feel free to contact us on 0800 612 7897 or email email@example.com.
We are experts in the home loan insurance market and will be able to provide a guiding hand if desired. Alternatively you can use the Quick Quote box at the top of the page to submit your details for a comparison of joint mortgage protection quotes from the UK’s leading insurers.
12/05/2013 by Samkew
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03/05/2013 by pblunden
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18/04/2013 by poppie10
Thanks for assisting me with my insurance plans, top knowledge and very understanding, you have taken the stress and hassle away!