Characteristics of a Mortgage Protection Plan
Marketed within the life insurance category, a mortgage protection plan provides financial support if you are unable to work through illness, unemployment or death. Plans are targeted toward those with repayment mortgages and can have a term of as little as three years up to a maximum of approximately thirty-five years.
How a Mortgage Insurance Protection Plan Works
When a mortgage protection plan is taken out, the arrangement will take place over a set term that is comparable to the outstanding balance on your existing home loan. As the term decreases, the value of the plan decreases incrementally. If you die within the term of the plan, the outstanding balance of your mortgage will be settled in full. The amount of the decreasing term value will be set at a fixed rate when the mortgage insurance plan is initially taken out.
If you fall ill during the term of the plan or are unable to work through unemployment, you will receive a set monthly payment to make up any shortfall in earnings for mortgage purposes only. Your mortgage protection plan will not be affected if you are being paid statuary sick pay (SSP) but you might receive a smaller benefit if your employer pays more than the standardised SSP rates.
There are a number of specific criteria applied to most protection plan purchases and payouts will be made under specified circumstances only. Although death is obviously a major factor, diagnosis of a specified illness that will result in death within a twelve-month period also ensures a full cash settlement. Diagnosis of a critical illness or permanent disability may also ensure a full payout.
Temporary illness and unemployment will be covered within the terms of the protection plan but these will usually be applicable for a set time period of up to one year. Although it is possible to make multiple claims on a policy throughout the full term, most insurers will not pay for continuous illness and there may be an additional period of qualification before any subsequent claims can be made.
Naturally, a mortgage protection plan should be a serious consideration for any homeowner and a growing number of lenders now insist on coverage as a mandatory supplement to basic life insurance cover. When a mortgage protection plan is added to a life insurance policy purchase, policyholders will usually enjoy a bundling discount that results in cheaper monthly premiums.