Mortgage protection insurance is a policy taken out when buying a home protecting the buyer if for any reason the mortgage cannot be paid off. It falls into the sector known as payment protection insurance, usually taken out with regards to a major purchase. It can either be purchased as part of the mortgage or independently from an insurer. Although it is not compulsory it is highly recommended, but there are some things people need to be aware of before taking out a policy.
Why is it needed?
Buying a house is probably the largest single investment anybody will make during their life. This means getting a mortgage is no small matter as if the borrower was unable to pay the money back there is a definite chance of bankruptcy. Taking out payment insurance in this case ensures no matter what happens the asset is protected. It also means relatives will not be burdened with the debt.
What does it cover?
There are a variety of types of home loan insurance that can be taken out, in the same way there is a variety of car insurance packages to purchase. Each of the policies covers certain unforeseen eventualities, but each will protect the purchase in that event. There are four main types of mortgage protection as well as a fully comprehensive policy, which is the most common. The insurance covers premature death, redundancy, critical illness and long term illness. Each of these may stop the borrower from paying off the mortgage.
How much will it Cost?
This depends entirely on the property being purchased and the person buying it. A young successful couple with well paying jobs will pay less as there is less risk of illness and redundancy halting the payments, whereas a retired and elderly person will expect to pay more. The price of the property and size of the mortgage loan will also have an effect as will the borrowers credit rating.
Is it really worth it?
Payment insurance is always a gamble as it adds to the cost of the purchase and may never be required, but it does protect the purchaser in the event of the unforeseen. It is not a legal requirement as most mortgage lenders only require building insurance to be taken out, so it is an entirely personal decision. To young buyers it, who may struggle to get a mortgage in the first place, it may seem like an unnecessary expense, but the question remains what if something goes wrong.