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Mortgage payment protection

This is a form of income protection insurance designed to help you pay your mortgage if you become unemployed, have an accident, or fall seriously ill. The more circumstances you wish to cover, the more expensive the monthly premiums. Policies sold by lenders are usually the most expensive.

A new breed of specialist independent providers has arisen, mostly selling on the Internet. Some small providers have come and gone in recent years; the insurance being underwritten by a reputable insurer does not guarantee the survival of the provider.

For most of us, our monthly mortgage payments are our biggest outlay. Imagine having to make these payments without an income.

They are often called Accident, Sickness and Redundancy (ASU) or Mortgage Income Protection policies. They are designed to cover accident, sickness or redundancy.

There will be a few extra exclusions on the unemployment/ redundancy part of the cover;

  • choosing to leave
  • end of contract
  • seasonal/ temporary work
  • voluntary retirement
  • disciplinary action/ misconduct

They pay out for a short period until you can find work. Most have a 12 or 24  month limit after which all payments to you stop, whether or not you are still out of work or unable to work. Policies do not offer a lump sum payment.

It may include unemployment and redundancy automatically or as an option.

It will stop payment when you reach retirement age

There is no investment element and no pay out at the end of the policy.

There are all sorts of different policies with small variations that could mean the difference between being able to claim in full and getting a reduced payout, or even nothing.

Deferred periods, i.e. the time between when you stop working and when you can claim for, vary. Sometimes you get a range of choices. Typically they offer 14 or 30 days.

Some policies bought independently; now offer longer periods of cover of 18 or 24 months, with deferred periods starting later, typically 60 days.

The sum insured will be the monthly mortgage payment, and is a fixed sum not affected by your actual income.

For decades, the price on these products has been irrespective of age, location, sex or occupation. Some new products now price by age band.

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Income protection insurance guide

  • Types of Premium
  • Choosing the right policy
  • Cost

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