Mortgage Protection Insurance – The Essentials
It's tempting to sit back and relax once you've moved into your new home – but hang on, have you made sure that you're insured against all the risks that could stop you from paying your mortgage? Many things could go wrong and make it impossible for you to work, and in this article we go through each risk, and assess how important it is that you take that into account. If you are responsible for a family, then it is particularly important that you take heed of the following five issues:
- What happens if interest rates increase and you can no longer afford your monthly repayments?
- What if you become disabled?
- What happens if you become ill or have an accident and you can't go to work?
- What if you have a serious accident or become critically ill, and you can never go back to work?
- What if you die and your family is left to cope with the outstanding mortgage?
These are all questions that new homeowners have to ask, and find answers to. The good news is, the insurance industry have it covered, and there are mortgage protection policies out there that can provide peace of mind against all these possibilities.
If you want to insure yourself against the possibility of being disabled and not able to work, then you need Mortgage Payment Protection Insurance. However it's important to be aware that this type of insurance is designed to protect those that are made disabled, not those that resign or are dismissed. Once you stop working, the insurance will start paying after 90 days and then for a maximum of 24 months. You can buy this insurance through your mortgage lender but we don't recommend it, they always charge more than their internet rivals.
You also have the choice of covering your mortgage payments due to a critical illness keeping you from working. However we recommend checking with your employer first to see if they have a critical illness plan in place. Some companies will give their employees $25,000 in critical illness coverage. It would be very difficult to meet the mortgage payment and other living expenses with $25,000.
The insurance industry estimates that 1/5 of men and 1/6 of women have to permanently leave work before retirement age because of a serious illness or accident. Think about it, if you have a heart attack at the age of 45 then you are unlikely to go back to work again. With a family to support, this could be disastrous.
There are a few options to look out for with Critical Illness Insurance – for example you need “decreasing cover” if you have a repayment mortgage. This is so the value of the payout decreases in line with the value of your outstanding mortgage.
Make sure you know all the facts about the insurance you buy, because there will be times that you can't make a claim. For example, Critical illness Insurance requires you to survive for a period following an accident or diagnosis of a critical illness, usually 30 days. If you die before that time, then no claim can be made on your policy.
To cover the possibility of you dying within 30 days, then you need mortgage life insurance. Many lenders require you to set up a mortgage life insurance policy as a condition of you taking out the mortgage. You don't have to buy it through the lender however, in fact it will be a lot cheaper if you don't. Also if you live alone and do not have to support a family, you don't necessarily need this type of insurance as the lender will recoup the money for the outstanding mortgage by selling off the property.
Mortgage Life insurance is the most popular kind of mortgage protection, and like critical illness insurance, you can not choose between “decreasing cover” and “level cover” depending when purchasing through your bank. Only with a life insurance broker can you get a "level cover" mortgage protection insurance.
There's no denying that buying all these insurance policies to protect your mortgage will cost, but there are a few ways to get the best value. Firstly, if you combine accident and illness with unemployment cover then you will save around 20%, compared to buying them separately. Some insurance companies may refer to this as “unemployment and disability” cover. Critical illness and mortgage life insurance also become cheaper if you combine the two, and we predict an average saving of 20-25%.
And don't forget the most obvious way to save money – shop around. Your lender will quote you on these insurances, and may even give you the impression that you have to buy your insurance through them, but you are free to buy it from any company you please. So it had might as well be the cheapest! Go online for the best deals, even better – contact a specialist life insurance broker and ask them to find the best deals for you. They can do all the legwork and, if you're not impressed, then you don't have to buy through them. The advantage they have on price is due to the hot competition on the Internet, especially for insurance. Search using any of the following terms: “Orleans cheap life insurance”, “ Orleans life insurance”, “ Orleans life insurance quotes” or “Orleans Mortgage Protection Insurance”, and you will come across a number of cost-effective options.
The other advantage to using a broker is that you have full access to their expert advice. When faced with the option of getting a “Guaranteed Premium” or a “Renewable Premium” for your critical illness insurance, will you know what it means? Even if you do, which one is best? That's when a life insurance adviser is worth their weight in gold. So we recommend picking up the phone and talking to an expert in person, it doesn't take long and it guarantees you getting it right first time.
The bottom line: peace of mind comes at a price – but it doesn't have to be expensive!