Mortgage payment protection is a new type of insurance that has gained popularity in the UK. In the US, such insurance tends to be called mortgage insurance. Those who buy a home with less that 20% down may be required to purchase such insurance to get the necessary financing.
US mortgage payment protection tends to give a payout if one dies or becomes permanently disabled. It may protect a co-purchaser, such as a spouse or domestic partner, from assuming the full weight of a mortgage. It tends to be one of the most expensive forms of insurance to protect payment of one’s mortgage in the event of death or disability.
Most reputable insurance brokers recommend that instead of purchasing mortgage payment protection, one purchase instead higher amounts of life insurance and disability insurance. These amounts generally cost about half the rate of similar amounts of protection from mortgage payment protection. However, those older than 45, those in poor health, and smokers, may end up paying more for life and disability insurance. In these cases, mortgage insurance may be a better choice.
Most mortgage payment protection plans in the US do not offer coverage or payments of the mortgage if the policyholder should become unemployed. Since unemployment benefits are significantly lower than earned wages, they may not provide enough to make mortgage payments, and could cause one to lose his or her home.
In the UK, protection if one becomes unemployed is the primary reason people purchase mortgage payment protection. Costs are about .24% of the mortgage amount per month. Usually mortgage payment protection requires an unemployed beneficiary to register with an unemployment agency and prove that they are diligently seeking work. In most cases, there is a set term in which the mortgage payment protection will continue to pay the mortgage. Terms are generally either 12 or 24 months. Additional months may be purchased but will significantly raise price.
In addition to payment if one becomes unemployed, UK mortgage payment protection will also offer options such as payoff of the mortgage if one dies or becomes totally disabled. This may be of great help to a surviving partner, or to those who might inherit the property, as they will own the full property, not just the portion previously owned by the deceased owner.
Mortgage payment protection is frequently offered with fixed terms. One’s payments to the insurer will never go up. However, if the home value changes, and the owner decides to refinance, thus owing a larger amount, he or she may not get full coverage or repayment without changing his or her mortgage payment protection policy.