While a strong case can be made for homeowners taking out life cover following the demise of endowment mortgages, it could be argued that accident, sickness and unemployment (ASU) cover is far more relevant.
In today’s uncertain times everyone faces some risk of unemployment and everyone faces the risk of an accident or unexpected illness, whereas statistically, dying early is much less likely.
Ensuring a regular income while you get your life back on track (there is virtually no State support available) should be a priority especially for the growing number of single buyers. Having said that, the sale of ASU policies has not been as high as the Government would have liked.
This is largely because the products sold by the high-street lenders have offered poor value for money. Fortunately, a new breed of cost effective ASU products ‘ with back to day one cover ‘ are now beginning to be marketed. This is good news for both brokers and clients.
Although it has come in for a fair amount of flak, there is no doubt that mortgage payment protection insurance (MPPI) is hugely important for homeowners. With borrowing at historically high levels, and potential inflation caused by the imminent Gulf war inflating oil prices, mortgages could face some major problems.
Inflation would almost certainly lead to an increase in interest rates, whilst simultaneously plunging the economy into recession, leading to greater redundancy. Without the safety net of repayment protection on mortgages, we could see more people struggling to meet their obligations. This would mean greater defaults and house repossessions, and almost certainly an end to the housing boom.
Given the lacklustre macroeconomic environment and volatile equity markets, failure to take sufficient mortgage protection could well be damaging to both individual homeowners, and the whole UK economy.
Skipton Building Society
The list would have to include MPPI which could cover against accident, sickness and unemployment. Alternative policies may exclude unemployment but give protection in the event of critical illness or long-term disability. Most lenders promote these products, with strict guidelines ensuring ethical selling whereby only products suitable for the customer’s individual needs are recommended. This also highlights any exclusions that may exist, such as pre-existing medical conditions or those that may apply to the self-employed. These products offer an affordable way of protecting borrowers and ensuring that they keep a roof over their heads when the unforeseen happens.
Ipswich Building Society
On the basis that most insurance is sold not bought, many borrowers taking out a new mortgage resist the overtures from the mortgage consultant to take out the various types of protection cover.
Many of these insurances, particularly MPPI, have had bad press. But borrowers should give serious thought to taking this cover out, ensuring they have sufficient life cover to repay the loan.
Taking out MPPI to cover the monthly mortgage payment in the event of redundancy or illness is advisable. Many people think their employer will cover them for the latter, but it may only be for the first month.
In addition, term assurance rates have fallen dramatically in recent years and it can even be worthwhile comparing the cost of a new policy with what is being paid now.
Site insurance for clients’ self-building or renovating a property, is essential cover. Apart from protecting the cash investment of the build, they can also protect the self-builder personally against damage or injury claims from members of the public, sub-contractors or trespassers.
A standard site insurance contract will provide contract works cover which will protect the building materials on site and the building in the course of erection. It will also provide public and employer’s liability cover. Site insurance policies can also cover items such as: own and hired in plant equipment, legal expenses to provide cover in respect of contractual disputes and caravan on site cover.
Cover usually lasts for 18-24 months, but most end on the completion of the work.
Although over 90% of people take out life cover to protect their mortgages, it is still worrying the majority does not see the need to guard against accidents, sickness and serious illness.
Even though the Mortgage Code requires advisers to discuss the need to protect mortgage payments against these unforeseen events, Mortgage Talk’s figures show just 21% of mortgage holders currently have payment protection insurance, while another 4% have critical illness cover. Worse still, 36% of mortgage holders have no payment protection insurance or critical illness cover whatsoever.
With interest rates now lower than ever, home-buyers should seriously consider proper payment protection as an integral part of their mortgage planning. As such, I believe it is essential this topic is fully explored when choosing a new mortgage product.